5.3 Research at the Bank of Finland in 2019

In 2019, the Bank of Finland made preparations for the ECB’s strategy review, which was set to be launched in 2020. Research conducted at the Bank contributes significantly to preparation for the review. During the year, the Bank’s research findings were published in many recognised academic journals. The Bank also hosted several international meetings of researchers.

The Bank of Finland’s key research areas are monetary policy, macroprudential policy, the macro economy, the financial system and its regulation, and emerging economies.

The Bank of Finland’s Monetary Policy and Research department prepared for the ECB’s strategy review to be launched in 2020 by organising research seminars for the Board and by making an extensive use of monetary policy models. The Bank has already conducted research on the ECB’s definition of price stability and the symmetry of monetary policy reactions. In 2019, the theme also featured prominently in the ECB’s own communications.

The Bank of Finland Institute for Economies in Transition (BOFIT) continued its analysis of, for example, China’s economic slowdown and the increasing risks to the country’s financial system. In addition, the effects of the trade war were studied from various perspectives.

Bank of Finland’s research articles in international journals

One of the key objectives of the Bank of Finland’s research activities is to have the Bank’s research articles published in recognised academic journals that apply the peer review method. In 2019, the Bank’s research contributions were published in a number of academic journals of high international quality. Below is a sample of the research published.

Gene Ambrocio’s research article ‘Rational Exuberance Booms’ was published in the Review of Economic Dynamics. The article examines the mechanisms that lead to overheating of the economy.

Zuzana Fungáčová was one of the authors of the research article ‘Persistent and transient inefficiency: Explaining the low efficiency of Chinese big banks’. The article states that the cost efficiency of large Chinese state-owned banks is persistently low. Inefficiency is therefore due to structural factors. The article was published in China Economic Review.

Eeva Kerola’s research article ‘In Search of Fluctuations: Another Look at China’s Incredibly Stable GDP Growth Rates’ was published in Comparative Economic Studies. The article finds that China’s official real GDP figures exaggerate the country’s economic growth at least from 2012 onwards.

Juha Kilponen participated in a study entitled ‘Comparing Fiscal Consolidation Multipliers across Models in Europe’, which was published in the International Journal of Central Banking.

Maritta Paloviita was one of the authors in the study ‘Cognitive Abilities and Inflation Expectations’, which was published in AEA Papers and Proceedings.

Markus Sihvonen examined in his article ‘Market selection with idiosyncratic uncertainty’ how irrational and atypical investors affect the bond markets. The article was published in the Journal of Economic Theory.

Seppo Honkapohja’s article ‘Price level targeting with evolving credibility’ was published in the Journal of Monetary Economics. Honkapohja wrote the article together with Kaushik Mitra (University of Birmingham) at the time when he was a member of the Board of the Bank of Finland.

Laura Solanko and Zuzana Fungáčová were among the authors of the research article ‘Banking in the Transition Countries of Central, Southern, and Eastern Europe and the Former Soviet Union’. The article was published in the prestigious Oxford Handbook of Banking.

The Bank of Finland published 50 discussion papers in 2019

BOFIT and the Bank of Finland’s Research unit each published 25 discussion papers.

Many of the Bank’s new research projects relate to monetary policy strategies at the zero lower bound and therefore to the ECB’s strategy review to be launched in 2020. The Bank also conducted a survey on banks’ capital requirements among the leading researchers in this area. Many of the new research projects of BOFIT were related to major structural changes in the Chinese economy, for example in the banking sector.

The BOF Economics Review is a publication series under which the Bank has published analyses, reports and small-scale studies since 2017. BOFIT has its own research-related publication series, the BOFIT Policy Brief.

Presentation of the Bank of Finland’s research outside the Bank

The Bank of Finland’s research findings were presented in 2019 in the Eurosystem working groups on modelling and forecasting and the research network, the meeting of the Heads of Research, the International Relations Committee, the Research Task Force of the Basel Committee and several other events in Finland and abroad.

In 2019, researchers from the Bank of Finland published four blog posts in VoxEU. In addition to the Finnish media, the Bank’s research works were also discussed in Bloomberg News, the Moscow Times and Handelsblatt.

Domestic and international meetings

Each year, the Bank of Finland organises meetings of economics researchers on topical policy issues. In 2019, the Bank organised or participated in the organisation of the following such meetings:

In March, the Bank organised a workshop entitled ‘Workshop on Empirical Macroeconomics’ in Saariselkä. The keynote speakers were the Research unit’s research fellow Fabio Canova, Òscar Jordà (Federal Reserve Bank of San Francisco) and Barbara Rossi (University of Pompeu Fabra).

In spring, the Bank organised a seminar on the monetary economy and financial market institutions in honour of Doctor Juha Tarkka on the occasion of his retirement.

In April, BOFIT co-organised with the University of Strasbourg and the Ifo Institute for Economic Research a workshop on the relationship between banking systems and institutions (‘Workshop on Banking and Institutions’). The workshop was held in Munich and the keynote speaker was Professor Hans Degryse (KU Leuven).

In July, under the leadership of Governor Olli Rehn, the Bank of Finland organised a monetary policy seminar entitled ‘Monetary policy and future of EMU’. Speakers at the seminar included Philip Lane, Chief Economist of the ECB; Richard Clarida, Vice Chairman of the Federal Reserve; and Yi Gang, Governor of the People’s Bank of China.

In August, the Bank co-organised with Fordham University and the City University of Hong Kong an international conference on China’s economic developments. The conference focused on the integration of the Chinese economy into the global economy.

In September, the Bank of Finland organised two events. Governor Rehn hosted a seminar entitled ‘Technological upheaval and labour markets’. Speakers at the seminar included Professor Laura Tyson and Professor John Zysman, both from the University of Berkeley, and Doctor Terhi Maczulskij from the Research Institute of the Finnish Economy, ETLA. The other September event was a conference entitled ‘Post-crisis policy challenges and implications for macro modelling’, which was co-organised with SUERF (the European Money and Finance Forum). The keynote speakers were Frank Schorfheide (University of Pennsylvania) and Doctor Stijn Claessens (the Bank for International Settlements, BIS).

In October, the Bank co-organised with CEPR (Centre for Economic Policy Research) a conference entitled ‘Monetary Economics and Reality’. The keynote speaker was Professor Andrei Shleifer from Harvard University.

In 2019, the Bank of Finland also hosted a meeting of the Economic Policy Panel. The Panel meets twice a year in the country holding the EU presidency.

In 2019, the Bank of Finland also organised dozens of other shorter work seminars at which the Bank’s own and visiting researchers presented their research topics.