6  In the original Taylor rule, the policy rate is determined by inflation and the GDP gap. See Taylor, J.B., “Discretion versus policy rules in practice”, Carnegie-Rochester Conference Series on Public Policy, NorthHolland, 1993. 7  See the article “The driving forces behind trends in the economy can be analysed using a production function” in the Monetary Policy Report of October 2010. 8  It is important to make a distinction between labour productivity, which is defined as output per hour, and total factor productivity. 9  This is the logarithm of what is known as a Cobb-Douglas function: the relationship in the text applies to the logarithms of Y, K, H and TFP. BIS central bankers’ speeches  . Consequently,  3  In accordance with the production function, the potential level of production can also be divided up into potential total factor productivity, potential capital stock and potential hours. Deviations from the potential level can be estimated for each of the three factors affecting output – capital, hours worked and TFP. These deviations can then be weighted together to give a total output gap. Calculations of potential GDP This section describes the calculations forming the basis for the GDP and hours gap published in the most recent Monetary Policy Update.10 Figure 4 shows an estimate of actual and potential TFP. Actual TFP is estimated with the Solow residual. The TFP estimate thus captures all change in output that cannot be explained by the development of capital and hours.
This is why they certainly need to be closely monitored, not only within individual firms but also at the level of supervisory bodies. •  At a moment when all activities are tending to accelerate and render location issues more acute, changes in the regulatory environment are crucial to fostering efficient financial markets. Let me mention in particular the UCITS (mutual funds) Directive and the directive on occupational pension funds, which ought to eliminate barriers to investment and, of course, the importance of the directive on take-over bids in the context of the integration of national stock exchanges. More generally, it is very important for the European Union to accelerate reforms in the financial field. In this respect, as I said, key directives have to be laid down and transposed adequately in national laws, whereby the public authorities within FESCO and professionals (like the members of your association) should play a role to facilitate a harmonized set of principles or recommendations. On all these subjects, we can expect a lot of progress in the following months, within the guidelines already issued by the European Commission (in its Financial Services Action Plan). France, for its part, has already expressed its intention to put these matters on the Agenda when it takes over the presidency of the European Union in July. 2.2 Coming now to the process of consolidation in the banking sector, there is no need to recall how banking and financial consolidation has sped up in recent years in Europe.