122 (www.cesifogroup.de); Gouveia, S. and Correia, L. (***):Some facts about business cycles synchronisation across the euro area countries: the case of small countries, Centre for Transdisciplinary Development Studies (CETRAD), Department of Economics, Sociology and Management (DESG), University of Trás-os-Montes and Alto Douro (UTAD), Portugal. 2  BIS central bankers’ speeches  brought cycles together, although a few efficient and credible shock absorbers were devised at the eve of the euro. Further on, there is some evidence on the increasing correlation between real cycles and financial cycles across different groups of EU member states, as provided by Meller and Metiu (2015) 5. Such a pattern emerges regardless of different sources and well-documented differences in frequencies and amplitudes between real and financial cycles. Moreover, researchers from the Bank for International Settlements have shown that the correlation between real and financial cycles gets stronger over time as the duration and amplitude of financial cycles increases. The main explanation for the increasing correlation between the real and financial cycle is the so-called “unfinished recession” phenomenon, according to which globalization and a more activist monetary policy, which fails to take into account the state of the financial cycle, eventually cause a bigger recession down the road 6. We are left with two more interesting features of cyclical (co)movements. The degree to which real and financial cycles converge across groups of member states is neither constant, nor does it increase in linear fashion over time. All the previously described processes might deliver the periods of high synchronisation, followed by rapidly collapsing convergence.

This is especially evident today in the environment of the anaemic growth and low inflation that require pursuing the expansionary stance of monetary policy, yet at a price of jeopardizing financial stability through the search for yield behaviour that might create new asset bubbles. To tame these risks, the tight stance of macroprudential policy is needed. Still, it remains to be seen how effective macroprudential policy can be in taming the risks that emanate from a long period of ultraloose monetary policy. The macroprudential ammunition at the disposal of central banks is another potential source of concern. The CRR/CRDIV has provided us with various tools: supply-side (such as capital and liquidity buffers) and demand-side instruments (such as LTV, LTI or DSTI ratios). However, one should be very careful not to err in calibration of those instrument, whether on the side that leaves insufficient coverage (effectively producing policy inaction) or on the side that creates too much of a burden (exceeding the net benefit of macroprudential policy in the medium term). Conclusion I hope this overview comes as a stimulus for further theoretical ad empirical research, regardless of the degree of agreement on the specific issues outlined in this speech. Therefore, I am looking forward to this conference. Hopefully, we will leave with answers to at least some of the questions raised and with a strengthened sense of obligation to continue with demanding work. Thank you. 8  BIS central bankers’ speeches