Opening Remarks by Dr Sinikka Salo, Member of the Board, in the 7th Annual Bank of Finland/CEPR Conference: "Credit and the Macroeconomy"
I am very pleased and honoured to welcome you all to Helsinki, and to this CEPR and Bank of Finland joint Conference "Credit and the Macroeconomy".

This annual event takes place now for the 7th time, which may also be regarded as a proof of fruitful cooperation between our two institutions. We at the Bank of Finland appreciate highly the work of CEPR's network of researchers and its cooperation with the central banks, and I am happy to confirm that we at the Bank are committed to maintain and foster this cooperation also in the future.

As many of you may know, the Bank of Finland has long traditions in research, and research plays a crucial role in our strategy according to which we aim at being “active member of the Eurosystem”. In the newly approved strategy for next three years this is again confirmed and strengthened.

We have attempted to alternate the CEPR/Bank of Finland conference themes between macro topics and financial markets topics. This year's theme is perhaps somewhere in between, but mostly, the papers which will be discussed in this year's conference are more or less linked to the paradigm of modern dynamic macroeconomics. The DSGE-models, in which optimizing agents – households and firms – interact in an environment of rigidities, provide laboratories in which one can address normative issues of optimal policy design.

According to Professor Gali, the current generation of DSGE models have contributed to policy in
several important ways: 1) They offer new insights into the transmission process of monetary policy. 2) They force model builders to think more carefully about underlying sources of economic
disturbances, and this has led to a better appreciation that the simple dichotomy between demand and supply shocks is not enough for policy analysis. Instead, one must understand the nature of the disturbances and whether they lead to inefficient fluctuations. 3) These models provide model-consistent measures of the output gap relevant for policy. 4) These models provide grounds for welfare-based policy − more specifically, the design of policy rules − giving new insights into the costs of inflation and the appropriate objectives of stabilization policy.

As a consequence, a veritable explosion of policy relevant research has taken place, one in which both academic economists and central bank research economists are active participants. It is no wonder that central banks in particular are interested in these models, and are trying to adopt these models for a practical use in policy evaluation – as you may know here at the Bank of Finland, the focus of one of our three research programmes has already for some time been DGE models, and their use in policy. We have set the goals of this programme in a very ambitious way – to work for the integration of financial markets and their imperfections into these models! This agenda is behind our specific interest in this years' topic. In all areas of research we naturally need joint efforts, in particularly in the area of DSGE development, where cooperation between academic and central bank researchers like in this conference, is crucial.

This conference is also important in fostering European contribution to this work where research on the other side of the Atlantic is perhaps more advanced and has a wider base. I find it extremely valuable that we in Europe are able to work together, for example, to study the models that hopefully give us better understanding on the very topical puzzle of current rapid credit expansion.

The current credit expansion – in double digits − is taking place in the Euro area regardless of rising interest rates and a reasonably low level of current and expected inflation? Should we worry or not? Perhaps this question cannot be definitely answered for good in the context of this conference, but it certainly highlights the importance of this year's theme.

On behalf of the whole Board of the Bank of Finland, I wish your conference the best success in your important work.