political cycles. the challenges in the domain of governments and fiscal authorities are both long - and short - run in nature. good examples of long - run structural issues are competitiveness and global warming. structural reforms can boost productivity and growth potential, and reduce structural unemployment, especially in times of ageing population. however, fiscal policy has also the potential of affecting economic activity in the short run to stabilize the business cycle. as stressed by president mario draghi, automatic stabilizers should be able to play their full role. clearly, euro area economies are heterogeneous in terms of their indebtedness and fiscal constraints. however, in countries where fiscal space is available, fiscal measures should be actively pursued, particularly towards the financing of public investment. what are the tasks of central banks in this division of labour? recent studies, such as those on the experiences of japan over the past decades, demonstrate that declining inflation expectations can become permanently stuck at low levels. this can lead the economy into a prolonged period of low inflation, where monetary policy has little room for manoeuvre. to prevent the anchoring of expectations at a level below target, central banks need to respond early enough and powerfully enough to bring about convergence to the price stability target, in situations where inflation expectations have become depressed for a protracted period. dear colleagues and friends, i was very excited to see the list of papers chosen for this panel. the selection covers most of the issues that i have mentioned before : structural reforms, expanding trade wars and the optimal policy mix. this simply confirms the role of economic policy as the pivotal journal for policy - relevant research in europe and beyond. so, without further ado, let me pass the ball to the chair of the first session. but before that, let me wish you a substantive and productive conference! many thanks for your attention. 3 / 3 bis central bankers'speeches

##udential policy is to prevent an excessive build - up of risks in the financial sector as a whole. in other words, it is about mitigating the financial cycle especially in booms. 2 below i will mainly focus on the second objective. as we focus on the prevention of excessive build - up of risks in the financial sector, it is essential to note that macroprudential policy complements microprudential policy. both use the same tools, especially capital requirements. but macroprudential policy also uses other tools such as loan - to - value caps. cf. kashyap, a. ( 2013 ). notes for northwestern advanced workshop for central bankers. cf. freixas, x., l. laeven, j - l. peydro ( 2015 ) : systemic risk, crises, and macroprudential regulation. the mit press. bis central bankers ’ speeches when defining the confines of macroprudential policy, it is also important to understand its relationship with monetary policy. in the long term, financial stability is a prerequisite for price stability. hence the two policy areas are clearly intertwined. however, in the short - and medium - term the economic cycle and the financial cycle can behave quite differently. to deal with the latter, a separate set of macroprudential policy instruments is needed. this way the two policy areas can best advance their common longterm interests. next i will talk about 1. the challenges of macroprudential policy in the current juncture and especially in the european context. 2. to illustrate the current challenges, i will also look back to history in finland in the late 1980 ’ s, few years prior to the dramatic banking and financial crisis of finland in the early 1990s, and 3. try to draw some macroprudential lessons of those experiences for today´s policymakers. 4. i will finish by discussing the emerging challenges from the growing shadow banking activities, and draw some conclusions. challenges of macroprudential analysis, policy, and implementation successful macroprudential policy is a sum of three things : 1 ) good and timely analysis, 2 ) sufficient and effective policy instruments ( tools ), and 3 ) effective implementation. we are on our way in europe to get this done. still a number of challenges can be identified in each of the three elements. the analytical challenges come in two parts. first, this has been a timely conference. we must admit that