In 2020, the ECB launched a review of its strategy. Research conducted at the Bank of Finland has significantly contributed to the analysis underlying the strategy review. The Bank’s research topics were also influenced by the pandemic that broke out in 2020.

In 2020, the Bank of Finland’s research contributions were published in recognised academic journals. The Bank also organised several online events for the international academic community.

Key research areas in 2020 were monetary policy, macroprudential policy, the macro economy, emerging economies and the pandemic

The Bank of Finland’s Monetary Policy and Research department actively participated in the ECB’s strategy review, which was launched in 2020.

Through the Eurosystem’s committees and working groups, the department provided research for the strategy review and produced analyses with various monetary policy models. Literature reviews and analyses were published on economic policy issues raised by the pandemic.

The Bank of Finland Institute for Economies in Transition (BOFIT) continued its analysis of, for example, the increasing risks to the Chinese financial system. In addition, the consequences of the trade war and the pandemic were studied from various perspectives. From the beginning of 2021, the Institute’s name is the Bank of Finland Institute for Emerging Economies, which better reflects the nature of the economies monitored by BOFIT.

Selected Bank of Finland discussion papers in 2020

BOFIT and the Bank of Finland’s Research unit published a total of 45 discussion papers.

Many of the Research unit’s discussion papers dealt with issues related to the monetary policy strategy review. Below are three examples.

  1. Maritta Paloviita, Markus Haavio, Pirkka Jalasjoki, Juha Kilponen and Ilona Vänni examined the tone in the ECB’s monetary policy statements by means of text analysis and used the information obtained for assessing the ECB’s monetary policy objectives. The research was entitled ‘Reading between the lines – Using text analysis to estimate the loss function of the ECB’.
  2. Francesco D’Acunto, Daniel Hoang, Maritta Paloviita and Michael Weber carried out a survey in spring 2020 which, combined with data from Finnish registers, provided internationally significant new information on the effectiveness of central banks’ monetary policy communication. The research was entitled ‘Effective Policy Communication: Targets versus Instruments’.
  3. In an environment of low interest rates, many are concerned about the regeneration capacity of the business sector. Satu Nurmi, Juuso Vanhala and Matti Virén provided new information in this area with their research ‘The life and death of zombies – evidence from government subsidies to firms’.

‘The Aino 3.0 model’ by Aino Silvo and Fabio Verona presented the newest vintage of the Aino macroeconomic model for the Finnish economy. It allows for the study of interlinkages between the housing market, the financial markets and the macroeconomy, enabling a diversified analysis of macroprudential and monetary policy measures.

Many of the research projects of BOFIT focused on the structural changes in China and the country’s influence on the global economy. Some of the projects were related to the Bank of Finland’s international economic policy process.

In his research entitled ‘The vanishing interest income of Chinese banks’, Karlo Kauko assessed that Chinese banks likely have more non-performing loans than officially reported.

Risto Herrala and Fabrice Orlandi found in their research entitled ‘Win-Win? Assessing the global impact of the Chinese economy’ that economic growth in China has had a negative impact on many other economies. For example, China’s rapid economic growth raises commodity prices, which in turn slows growth in many other countries.

Zuzana Fungáčová, Koen Schoors, Laura Solanko and Laurent Weill found in their research ‘Political cycles and bank lending in Russia’ that both private and state-owned banks in Russia tend to increase lending before presidential elections.

A total of 14 studies were published in the BOFIT Policy Brief series.

Publications in the BoF Economics Review series in 2020

Eight studies were published in the BoF Economics Review series, which focuses on topical issues related to economic policy and the economy.

Gene Ambrocio and Mikael Juselius conducted a study entitled ‘Dealing with the costs of the COVID-19 pandemic – what are the fiscal options?’, and Juha Kilponen a study entitled ‘Koronaviruskriisi leikkaa syvän loven Suomen talouteen’ (‘The COVID-19 crisis will make a big dent in the Finnish economy’). Both of these analysed the economic impacts of the pandemic and policy options to mitigate them.

Gene Ambrocio examined in his study entitled ‘European household and business expectations during COVID-19:Towards a v-shaped recovery in confidence?’ how the pandemic has affected economic sentiment among households and businesses across Europe.

Bank of Finland’s research articles in international journals

One of the key objectives of the Bank of Finland’s research activities is to publish the Bank’s research articles in recognised academic journals that apply the peer review method.

Below is a sample of the research published in 2020.

Nigel McClung examined the conditions for stable and low inflation when interest rates are close to their zero lower bound. The article, entitled ‘E-Stability vis-a-vis Determinacy in Regime-Switching Models’, was published in the Journal of Economic Dynamics and Control.

Eero Tölö’s study ‘Predicting systemic financial crises with recurrent neural networks’ was published in the Journal of Financial Stability.

Zuzana Fungáčová, Paul-Olivier Klein and Laurent Weill analysed the inefficiency of the Chinese banking sector in the article ‘Persistent and transient inefficiency: Explaining the low efficiency of Chinese big banks’, which was published in China Economic Review.

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

In 2020, the Bank of Finland’s research findings were presented in the Eurosystem working groups on modelling and forecasting, the Eurosystem research network, a working group led by the BIS, at the meeting of the Heads of Research of Nordic central banks and at several other events in Finland and abroad.

In 2020, researchers from the Bank of Finland published six blog posts in VoxEU, one of the key fora for economic policy discussion.

Domestic and international meetings

In 2020, the Bank organised or co-organised the following academic events on topical policy issues:

In August, a research workshop entitled ‘Workshop on Finance and Politics’ was co-organised with the University of Strasbourg and Fordham University.

As part of the annual meeting of the European Finance Association (EFA), a special session entitled ‘Banking, Safe Assets, and Monetary Policy’ was held in August.

As part of the annual meeting of the Central Bank Research Association (CEBRA), a special session entitled ‘Future of EMU: Developing Institutions and Reviewing Macroeconomic Policies’ was held in September.

The joint annual research workshop with the Centre for Economic Policy Research (CEPR) was held in September, this time with the theme ‘Monetary Policy Tools and Their Impact on the Macroeconomy’.

The webinar entitled ‘The Bank of Finland Monetary Policy webinar: New Challenges to Monetary Policy Strategies’, which was hosted by Governor Olli Rehn, was organised on 24 November.

The meeting of the Heads of Research of the Nordic central banks, which was held in December, focused mainly on themes related to the economic impacts of the COVID-19 pandemic.

A conference entitled ‘China and World Economy Under the Cloud of Trade Disputes:New Challenges’ was co-organised with the City University of Hong Kong and Fordham University at the turn of November and December.

In 2020, the Bank of Finland also organised a number of other shorter seminars at which the Bank’s own and visiting researchers presented their research. After the outbreak of the pandemic, the seminars took place online.

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The Bank of Finland and international cooperation in 2020