This type of stress testing also accounts for what implications banks’ reactions would have for the real economy. In other words, macroprudential stress tests consider the adverse credit supply shock that may lead to an amplification of the macroeconomic effects of the global shock, which, in turn, could further damage banks’ balance sheets. By modelling the negative feedback loop between the banking sector and the real economy beyond the first round of shocks, we believe the exercise becomes more realistic. A macroprudential stress test of banks directly supervised by the ECB, using the baseline and adverse scenarios of the recent EBA stress test, confirmed the general resilience of the euro area banking system. Results, however, point to an additional fall in GDP of 1.6% across the euro area, on top of the GDP shocks of the adverse scenario over the three-year horizon. This stress-testing framework can also inform the calibration of macroprudential policies with the 3/6  BIS central bankers' speeches  aim of limiting unintended spillovers to other parts of the financial system or the real economy. In the spirit of pre-emptive macroprudential policy, these exercises can emphasise the need for the timely build-up of capital buffers, which can then be used to absorb losses when risks materialise, before they affect growth and employment. Finally, the stress-testing framework can be used to analyse the spillover effects of the macroprudential policies themselves.9 For instance, another finding of the framework is that capital-constrained banks are more likely to reduce their foreign exposures than their domestic ones.
A consistent implementation of this policy, with an inflation target, clarifies the rules of the game for wage formation. High wage increases are liable to boost inflation, which necessitates higher interest rates. The inflationary consequences of the wage increases can be modified if productivity growth is good, as has been the case in recent years. But at least a part of this productivity growth is achieved at the expense of jobs; this is one aspect of the process whereby higher labour costs generate stronger rationalisation and maybe also an increased capital input. In this way, too, and not just because the higher interest rates directly affect demand and employment, a rapid wage rise is liable to endanger jobs. Against this background, the outcome of the latest wage negotiations is better than in earlier years. Agreements for the next three years have been concluded at levels around 3 per cent a year. It has been said that this takes wage drift into account but that is probably not entirely the case. Instead one should no doubt count on wage drift averaging around 1 per cent. The average annual wage outcome in the period 1998–2000 would then be 3.5 to 4 per cent. This does still represent some downward shift in the rate of wage increases, which in turn assists the Riksbank’s task of ensuring low inflation. All else equal, we can allow ourselves a somewhat lower level of interest rates and a somewhat stronger growth of demand.