eintracht frankfurt, there is every reason for the father to cancel the test, since he has already made his son study. his optimal choices are time - inconsistent. and his son is not outsmarted so easily. he will call his father ’ s bluff, as he knows the europa league schedule just as well as his father does. similarly, a one - off promise of “ lower for longer ” holds the allure of a monetary stimulus now, at the cost of higher inflation in the future. but when the time comes to make good on the promise, the benefits have already been reaped, and only the cost of higher inflation remains. at this point, policymakers have an incentive to renege on their promise as well. but such an approach still raises further problems. in the case of the euro area, it should be kept in mind that, according to our existing strategy, the governing council defines price stability as a year - on - year increase in the hicp for the euro area of below 2 % and aims to maintain inflation rates below, but close to 2 % over the medium term. thus, intentionally higher inflation rates would not be consistent with this strategy and may pose a communication challenge and a credibility risk. moreover, for “ lower for longer ” to work as intended, inflation expectations of firms and households need to respond accordingly : short - term expectations have to adapt to the central bank ’ s guidance without de - anchoring long - term expectations from the inflation target. this is certainly no mean feat. a study on various advanced economies suggests that expectations of households and firms do not respond much to announcements on monetary policy in an environment of low inflation. the researchers refer to this as a “ veil of inattention ”. [ 12 ] central banks would need to pierce it by adjusting and intensifying their communication in order to use inflation expectations as a more active policy tool. furthermore, after a long period of low interest rates, holding interest rates lower for even longer would aggravate the risks and side effects of a very expansionary monetary policy. for example, the longer the period of negative rates persists, the more likely it is to place a burden on banks that primarily generate their income from traditional deposit - taking and lending operations. this is what we observe in the euro area. in this context, the relief which the new tiering system will provide to banks is likely to be perceptible, but modest. it is the indirect effects of

with the current situation using our four - point checklist, beginning with borrowing by businesses and households. business debt has grown faster than gross domestic product ( gdp ) for several years and today is high. but the growth in the ratio of business debt to gdp in the past decade is much less than the growth in household debt to gdp that we saw in the run - up to the global financial crisis. back then, household debt grew from 60 percent of gdp to 90 percent, or by half ( figure 5 ). at its recent low, business debt was 65 percent of gdp. now, even after rapid growth, it is still below 75 percent of gdp. overall, the increase in business debt relative to the the board ’ s financial stability report discusses the analytical framework. for a longer and more academic discussion, see adrian, covitz, and liang ( 2015 ). for research on the role of credit, house prices, and other factors as indicators for potential financial instability, see borio and lowe ( 2002 ) ; schularick and taylor ( 2012 ) ; jorda, schularick, and taylor ( 2016 ) ; and kiley ( 2018 ). for research on the role of bank capital, see basel committee on banking supervision ( 2010 ) ; macroeconomic assessment group ( 2010 ) ; and firestone, lorenc, and ranish ( 2017 ). - 7size of the economy is one - third the increase in household debt seen in the previous decade. business debt rises in expansions. it is a steady upward plod in borrowing over the long expansion — not a rapid expansion — that has now brought business debt to gdp back to historic highs. seen this way, the current situation looks typical of business cycles. the mortgage credit boom was, because of its magnitude and speed, far outside historical norms. 3 as for household debt, we see that household debt - to - income ratios have steadily declined post - crisis. moreover, a high and rising fraction of this debt is rated prime. all told, household debt burdens appear much more manageable. our second factor — valuation pressures — also points to moderate risks to financial stability. valuations are high across several financial markets. equity prices have recently reached new highs, and corporate bond and loan spreads are narrow. both commercial and residential property prices have moved above their long - run relationship with rents, although price gains slowed substantially last year. all of these developments point to strong risk appetite — as might be expected