Influence and cooperation
3.3 Bank of Finland research supports monetary policy preparation
Research of high international quality supports the preparation of monetary policy at the Bank of Finland and underpins the Bank’s influence in the Eurosystem.
The Bank of Finland conducts research mainly in the Research unit of the Monetary Policy and Research department and the Bank of Finland Institute for Economies in Transition (BOFIT). In addition to own researchers, both of the units have an active visiting researchers’ programme and employ academically renowned external advisers.
Research at the Bank of Finland focuses on the macro economy, monetary policy, macroprudential policy, financial markets and emerging economies.
Drawing on the work of researchers and their research findings in the preparation of policy measures and development of analysis tools is an integral part of the Bank of Finland’s strategy.
A new version of Aino (see Forecasting of the Finnish economy), the Bank of Finland’s key macroeconomic model, is under construction. The new version will incorporate housing markets and will enable better examination of the effects of various macroprudential instruments.
Researchers at BOFIT have, among other work, participated in various research projects dealing with the implications of China’s economic slowdown for the euro area and the global economy.
Research findings published in international journals
The Bank of Finland aims to have the findings of its research published in high-quality scientific journals. In 2018, the Journal of Money, Credit and Banking, for example, published a Bank of Finland research work on the optimal mix of monetary and macroprudential policies. Another study by the Bank published in the same journal focused on the connection between households’ forecast errors and overindebtedness.
According to a research paper published in the Journal of International Financial Markets, bank liquidity creation varies according to business cycle fluctuations. A study published in Quantitative Economics extended the methods used in assessing macroeconomic models.
A research paper published in the International Journal of Central Banking compared the indicators measuring vulnerabilities in the financial system.
Finally, a study published in the journal Research in International Business and Finance finds that Nordic banks fared better than other banks during the crises of 2008 and 2009 because they had retained their lessons from the Nordic banking crises of the early 1990s.
Bank of Finland discussion papers
Research conducted at the Bank of Finland is typically published initially as discussion papers. In 2018, a total of 26 discussion papers were published in the Bank of Finland Research Discussion Paper series and 23 in the BOFIT Discussion Paper series. The topics of the discussion papers included:
equity risk premium and the term structure of interest rates
the link between demography and inflation
distortions in Chinese GDP statistics
the impact of private information on banks’ credit decisions
the impact of fiscal policy on the effectiveness of forward guidance
the efficiency of Chinese banks
developments in macroeconomics since the financial crisis
comparison of macroeconomic forecasting methods
effects of monetary policy decisions on professional forecasters’ expectations.
In addition to these, the Bank of Finland had several other research projects ongoing in 2018. One of these examines the impact of economic agents’ cognitive abilities on the transmission of economic policy. The project has already attracted international attention. Another project studies the impact of Western sanctions on the contraction of capital flows into Russia.
Bank of Finland research in the media and elsewhere
The attention received by the research findings in the media, at scientific conferences and at Eurosystem events is important, as this increases the relevance of the findings.
In 2018, the Bank of Finland’s researchers published two blog posts in VoxEU. The Financial Times examined the Bank’s research work on European Banking Union and the Capital Markets Union. Three of the Bank’s research works were presented in Eurosystem committees and working groups.
BOFIT participated in a joint research project of the European System of Central Banks that studied the implications of China’s economic slowdown for the euro area. The project findings were published in the ECB’s Occasional Paper Series.
International conferences and workshops
Each year, the Bank of Finland organises several international scientific meetings.
In January, the Research unit co-organised with the Research Institute of the Finnish Economy a seminar entitled Safe Assets, Sovereign Debt and Financial Stability. Speakers at the seminar included Philip Lane from the Central Bank of Ireland and Sylvie Goulard from Banque de France.
In June, BOFIT co-organised with the University of Strasbourg a workshop on the transmission channels between the financial system and politics (Workshop on Finance and Politics).
In June, the Research unit co-organised with CEPR a research conference entitled Money in the Digital Age. The conference was part of a wider series of events. The keynote speakers were Bengt Holmström (Massachusetts Institute of Technology) and Hyun Song Shin (Bank for International Settlements).
At the beginning of December, BOFIT co-organised with the City University of Hong Kong and Fordham University a conference on the effects of China’s economic reforms during the last four decades. The keynote speakers at the conference were Shang-Jin Wei (Columbia University) and Gérard Roland (University of California – Berkeley).
In addition to conferences, the Bank of Finland organises high-quality research seminars almost every week.