This may continue to boost mainland output. In the past few years, household demand has been underpinned by low interest rates, high real wage growth and higher asset prices. According to preliminary national accounts figures, private consumption increased by 4.3 per cent last year. House price inflation has slowed somewhat, but remains high. Housing starts in 2004 were at the highest level for several years. Home refurbishment is probably also rising sharply. Overall, the supply of capital to households has increased sharply. Debt accumulation was slightly higher than 11 per cent in 2004 and is now considerably higher than growth in household disposable income. This largely reflects the sharp rise in house prices since the mid-1990s. According to TNS Gallup’s consumer confidence indicator for the first quarter of 2005, households are still highly optimistic with regard to their personal finances and the domestic economy. Our regional network confirms this view with reports of strong growth in companies that provide goods and services to households. On the whole, household consumption and housing investment are projected to show fairly strong growth over the next few quarters. Despite the strong upturn in the mainland economy, the rise in the number of employed has been fairly modest. Productivity rose quite sharply in the first few quarters after economic growth picked up. Normally, strong productivity growth is gradually followed by an increase in employment. The current upturn has lasted about two years.
Certainly, the more flexible is your economy (in terms of public finances, the labour market, and so on), the easier it is to cope with shocks and the less monetary policy is needed. However, the case of the Eurozone shows how tricky it is when the absorber in the form of monetary policy is switched off and nothing replaces it. The shocks are bigger and hurt more. Listeners themselves can answer the question of whether the labour market and labour law are likely be made more or less flexible (and dismissals made easier) in the future. In doing so, they will answer the question of whether there will be a need in the future for more or less domestic monetary policy in the Czech Republic, a country whose conservative population is so averse to upswings and downswings. 1/3  BIS central bankers' speeches  The “convergence trilemma” The standard “monetary trilemma”, which you know very well (a country cannot simultaneously have a fixed exchange rate, an open capital account and autonomous monetary policy), is accompanied in a converging economy of our kind with something I call the “convergence trilemma”. No country can simultaneously have high convergence growth, a fixed exchange rate, and low macroeconomic imbalances, be they internal or external. In our case, catching up with our wealthier, low-inflation Western peers means a long-term tendency for our currency to appreciate. This is hardly consistent with a permanently fixed exchange rate.