Yves Mersch: Policy needs, knowns and unknowns in the aftermath of the crisis Keynote speech by Mr Yves Mersch, Member of the Executive Board of the European Central Bank, at UBS, Zurich, 4 February 2016. *  *  *  I would like to thank Valerie Jarvis for her assistance in preparing this speech. Ladies and Gentlemen, I would like to thank Valerie Jarvis for her assistance in preparing this speech. Coming out of a crisis, one of the biggest challenges that policymakers face is uncertainty about the state of the economy. We can respond to this, of course, by looking at stylised indicators, such as inflation or employment. But for a forward-looking monetary policy, that’s not sufficient. We need to know the strength of the inflation pressures building up over the medium-term – that is, whether the economy is over-heating or under-cooking relative to its underlying potential. It is for that reason that central banks have traditionally used the concept of potential output – the level of output consistent with price stability – to gauge inflationary pressures. 1 If actual output is above potential output, there is a positive “output gap” and we can expect upward pressures on inflation. And if actual output is below potential, the opposite will be the case and disinflation will follow. In general terms, I see nothing wrong with this way of thinking. The economy is vastly complex and we need simplifying frameworks for assessing “how it’s doing” overall.
12 There’s a lot of scope for European firms to catch-up in terms of improving management quality, to make the organisational changes required by new technologies, and in terms of improving ICT skills, so that workers can operate those technologies effectively. 13 But looking further ahead, it’s clear we need to reflect on what types of skills will be needed for the next phase of the ICT revolution: the replacement of routine service occupations by robotics. 14 There will obviously have to be larger human capital investment in people who will design robots. But greater upskilling and professional polyvalence will also be needed in the people who use them: those who work in automated warehouses, for example, may have to have  10  http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2016/01/13/090224b08405ea05/ 2_0/Rendered/PDF/World0developm0000digital0dividends.pdf. Similarly, Diane Coyle notes that the UK’s Statistical Abstract for 1871–85 – in retrospect, the height of the industrial revolution – devoted just 12 of the 200 pages on the economy’s output and trade to manufacturing and transport “Commentary: Modernising Economic Statistics: Why It Matters,” National Institute Economic Review, No. 234 (November 2015). 11  Robert J. Gordon, The Rise and Fall of American Growth (Princeton UP; 2016). See also: Juan F. Jimeno, Frank Smets and Jonathan Yiangou, “Secular stagnation: A view from the Eurozone,” Secular Stagnation: Facts, Causes and Cures, ed . Coen Teulings and Richard Baldwin (CEPR, 2014). 12  Bart van Ark, Mary O’Mahony and Marcel P. Timmer, “The Productivity Gap between Europe and the United States: Trends and Causes”, The Journal of Economic Perspectives, Vol.