research needs to be pursued much further, incorporating the pre - crisis years, looking at various types of financial markets, and better motivating our analysis in terms of theory. establishing an “ optimal ” threshold above which the size of the financial sector is harmful and below which it is beneficial for society is much more complicated than identifying multiples keyes, b., mukherjee, t., seru, a., and v. vig, 2010. did securitization lead to lax screening? evidence from subprime loans. quarterly journal of economics 125, 307 – 362. mian, a., and a. sufi, 2009. the consequences of mortgage credit expansion : evidence from the u. s. mortgage default crisis. quarterly journal of economics 124, 1449 – 1496. hordahl, p., and m. king, 2008. developments in repo markets during the financial turmoil. bis quarterly review ( december ), 37 – 53. adrian, t., and h. shin, 2010. liquidity and leverage. journal of financial intermediation ( forthcoming ) ; brunermeier, m. and l. pedersen, 2009. market liquidity and funding liquidity. review of financial studies 22, 2201 – 2238. reinhart, c., and k. rogoff, 2009. the aftermath of financial crises. american economic review 99, 466 – 472. deidda, l., and b. fattouh, 2002. non - linearity between finance and growth. economic letters 74, 339 – 345 ; rioja, f., and n. valev, 2004. does one size fit all? a reexamination of the finance and growth relationship. journal of development economics 74, 429 – 447. that deviate from their long - run trends. while some parameters of financial markets – like total loans outstanding, stock market capitalisation, or foreign financial flows – are relatively easy to observe and quantify, many are not. the financial system consists of a number of activities that do not necessarily involve credit expansion. examples include proprietary trading, or some of the activities which – especially in the us and the uk – investment banks, broker dealers, hedge funds and the like have been engaged in. that “ the financial sector is too large ” simply cannot be an absolute claim. while it is true that, for example, financial sector employment as a share of total employment

revised slightly upwards, with annual real gdp is expected to increase by 1. 8 % in 2017, 1. 7 % in 2018 and 1. 6 % in 2019. the impact of monetary policy measures on euro area gdp growth is sizeable, adding a cumulative 1. 7 % over the period 2016 – 2019 ( chart 4 ). 5 / 10 bis central bankers'speeches but while significant progress has been made, it is too soon to declare complete success. headline inflation has increased, but has yet to sustainably converge towards our objective. the increase mostly reflects rising energy and food price inflation, with underlying inflation pressures still subdued ( chart 5 ). the flash estimate for march shows that headline inflation has dropped to 1. 5 % from 2 % in february and that underlying inflation decreased from 0. 9 % to 0. 7 %. we had previously warned that headline inflation could decline after march - april as a result of the reduced statistical base effect of comparing this year ’ s price levels of oil and other commodities with their value a year ago. the decrease in underlying inflation, however, is disappointing. the domestic drivers of inflation, namely wages, are not yet responding to the recovery and the narrowing output gap. according to our latest projections, inflation is expected to move towards 1. 7 % in 2019 ( chart 5 ), predicated on underlying inflation and wage growth of 1. 8 % and 2. 4 %, respectively. without the foreseen increase in wages, the baseline scenario of our staff projections for growth and inflation will not materialise in 2019. at early stages of its recovery, the us also faced the same subdued behaviour of underlying inflation and wages that accelerated only later. to achieve our goals concerning self - sustained inflation, we have to be sure that domestic drivers of inflation are behaving accordingly. in this perspective, it is worth mentioning that the projections rely on the continued substantial degree of monetary accommodation. absent our policy package, inflation would on average be almost 0. 5 % lower than currently projected in each year over 2016 – 2019 ( chart 4 ). in other words, inflation is not yet self - sustaining. for this reason, the governing council at its last meeting confirmed the appropriateness of the current monetary policy stance. as ever, we are data dependent ; we recognise that there has been improvement in the situation and if inflation gives signs of a sustained path towards our aims, we will reassess our present policy stance. 6 / 10 bis central bankers'speeches improving