ignazio visco : accounting for the long - term costs of the recession remarks by mr ignazio visco, governor of the bank of italy, at the iea - isi strategic forum 2014, final roundtable “ accounting for the long - term costs of the recession ”, rome, 23 september 2014. * * * 1. the legacies of the great recession are many and multifaceted ; they not only affect current cyclical developments, but may also have permanent bearings on our economies. however, today ’ s difficulties and opportunities, as well as tomorrow ’ s prospects, are the result of deep underlying forces that were already reshaping the functioning of the world economy well before the great recession began. a. crisis legacies for economic growth 2. in advanced countries such as the us and the uk, gdp ( imperfect an indicator as it may be, especially in the face of the increasing role of digitisation ) has now overtaken its pre - crisis level : however, the growth rate remains lower than before 2008. in the euro area as a whole, current gdp still remains below its pre - crisis level, to which it might return late next year. it should also be underlined that the weak recovery is no longer confined exclusively to stressed countries of the area. 3. what is more worrying is that the crisis may have left lasting scars. the high correlation between the increase in estimated output gaps since 2007 and the fall in the ( estimated ) growth rates of potential output suggests that lower investment and higher unemployment ( or under - employment ) may have had an impact extending well beyond the current cycle. 4. this is particularly worrisome for countries with high public debts, whose sustainability requires a return to steady economic growth, and which may also suffer, as is presently the case in the euro area, from excessive disinflation. and this is why structural reforms and accommodative monetary policy are so much in demand these days. 5. that the legacies of the crisis go well beyond the short term is best epitomized by ongoing talks about risks of hysteresis ( the extent to which cyclical developments affect an economy ’ s longer - term dynamics ) and the revival ( by larry summers ) of alvin hansen ’ s 1930s hypothesis of secular stagnation. in essence, this hypothesis relates to factors that generate permanently higher savings and lower investment, in a context where monetary policy is unable to reduce the real interest rate to the required

about and understanding regulatory and tax policy. but incentives also help motivate people in a variety of other settings, such as encouraging students to do their best in school, helping reduce traffic jams, or even nudging someone to save more or to exercise regularly. economics is a practical and powerful tool for understanding how we relate to each other. and that ’ s why what you do for your students is so important. like all teachers, you are helping prepare them for success in life. the knowledge you impart and the intellect and talents you help develop are tools that your students can use to achieve that success. economics teaches analytical and critical thinking skills useful to anyone. part of your students ’ success is their economic success as capable, creative, and productive members of the workforce and as consumers adept at managing their finances. your students benefit from this education, but so does everyone else in society. we all benefit when better - educated citizens support economic policies that help our nation prosper. we all benefit from the capability, creativity, and productivity of our workforce, because nothing is more important to a healthy and growing economy. responsible consumers skilled in managing their finances are better prepared to weather bad 1 / 2 bis central bankers'speeches times, and stronger household finances overall can help sustain economic growth and mitigate a downturn. stabilizing growth and mitigating a downturn, of course, are aspects of the federal reserve ’ s mission. monetary policy can be a powerful tool to achieve these ends, but, in truth, its powers are dwarfed by larger forces, such as the productivity of the american people and the strength of their finances. by educating students and supporting their future contributions to the economy as workers and consumers, all teachers, especially economics teachers, are furthering our goals at the fed, so let me offer my further thanks for making our job easier. to help support your work as teachers, the federal reserve board and the 12 reserve banks conduct programs, organize events, and publish books to spread knowledge of economics, financial literacy, and the role of the fed in promoting a healthy economy and financial system. you can find some of those resources at our websites : federalreserve. gov and federalreserveeducation. org. each of the reserve banks has community outreach and educational initiatives, and the outreach to economics teachers is coordinated by the system economic education group, which has been chaired by princeton williams. at the board of governors, for some years we have