To find a reasonable explanation for the continuous higher growth over such a lengthy period, it is not sufficient to point to the stability-oriented macroeconomic policies which, at least in the monetary realm, we have shared with other countries. We must also turn to the microeconomic reforms undertaken since the onset of democracy, encompassing areas as important as privatisation, the labour market and social security reforms, and the liberalisation of numerous markets; notwithstanding, as I shall indicate later, that there is still considerable work outstanding in this area. An excellent example of these reforms is the transformation the Spanish financial system has undergone. Here, the efficiencies generated by liberalisation contributed to all players, in general, turning in a sound performance: bank and savings-bank managers, trade unions and employers' associations, governments and the financial supervisor all thus helped bring about an industry which is today held in worldwide esteem. Nonetheless, although these macroeconomic and microeconomic policies no doubt brought their weight to bear, it would be very difficult to explain what has happened in Spain without turning to other more structural causes. One essential factor of growth in recent decades has been the change in the level of Spanish educational achievement in the 70s and 80s, which meant that those joining the labour market in the 90s had a far higher level of educational attainment than that of previous generations. And as well as higher education, these new entrants were also much greater in number than their predecessors.
We also allow for the wage Philips Curve to be non-stationary: it moves over time, and it is absolutely normal to do so. Reference wage values, social preferences, jobs’ characteristics, skill endowments and even Central Banks’ targets, they all change over time – hence, the impact of wage gaps on inflation cannot be the same in different time periods. The preliminary finding of our model is that inflation does not increase close to or above its target level until the wage gap is closed. For Philips Curve to work, the loss of welfare from a negative wage gap has to be fully compensated first – as a stock measure, not as a flow. The policy recommendation from here is that countries which closed their wage gap should be much more prudent in further wage increases – because they will be seen in inflation much faster and larger than in the recent past. And for countries which have not closed their wage gap the implication is 3/5  BIS central bankers' speeches  that inflation will remain subdued until this happens. I fully agree with the IMF’s recommendation that central banks in NMS with their own currencies should be alert to the inflation risks of higher wage growth, while bearing in mind that raising policy rates could trigger capital inflows and exchange rate appreciation – which could further deepen current account imbalances. While the real monetary policy stance may differ between euroarea and emerging Europe, there is broad heterogeneity even among emerging Europe.