Through another field experiment embedded in our American Life Panel survey modules, we have examined how respondents update their expectations after receiving information about either past food price inflation or future inflation forecasts by professional forecasters. Before the information treatment, and again after the provision of information, respondents were asked for their inflation expectations. We also asked for respondents’ priors about the information that was provided, to see whether those who have larger perception gaps are more likely to update their expectations, and if they would do so by a larger amount. We found that respondents revise their expectations in the direction predicted by theory after receiving new information. Further, the extent of revisions is correlated with the size of their perception gaps. Finally, respondents are more receptive to the new information when the uncertainty expressed in their baseline expectations is greater. All three findings are consistent with rational, Bayesian updating of expectations. Moving beyond average effects, we also found that our information treatment leads to a significant decline in the cross-sectional dispersion of inflation expectations, and causes the 4  BIS central bankers’ speeches  distribution of inflation expectations to converge toward its center – particularly for those who had high baseline expectations and were less informed ex ante. In fact, average revised expectations were nearer to actual realized CPI inflation as a result of our intervention.
The question is then how we can maintain the benefits of financial integration at the same time as we avoid ending up in another crisis such as this one. It is especially important to answer this question in our respective countries, that is, in Sweden as well as in Greece. Both you and I represent countries with domestic banks that are heavily engaged in cross-border banking activities. In Sweden, the domestic banks conduct roughly half of their lending in international markets, mainly in the other Nordic countries and in Germany. However, over the last five years we have also seen three of our largest banks (SEB, Swedbank and Nordea) capturing substantial market shares in the Baltic States. In some of these countries the Swedish banks account for up to 80 per cent of the domestic banking system. 1 Greek banks are also extensively involved in cross-border banking. National Bank of Greece, for instance, operates subsidiaries in over 20 countries in South-eastern Europe and the Eastern Mediterranean. 2 I will devote most of this speech to a discussion about the main implications and challenges arising from this new banking structure. Before turning to that, however, I will say a few words about how cross-border banking has developed and describe briefly why we may have seen such a rapid globalisation of the banking sector to begin with. Then I will focus on the need to enhance cross-border cooperation between national authorities.