8 The further countries are located from one another, the less likely it is that their banks will be active in one another’s markets. Many of the banks operating in Central and Eastern Europe originate in Western Europe. Right after the fall of the Soviet Union and the opening up of strictly regulated markets, the presence of foreign banks from Western Europe exploded. Today, many of the countries in the region report foreign ownership in excess of 80 per cent of total banking assets. Also here we see a strong geographical component. A large share of the foreign banking assets in  3  By the end of 2009 these countries accounted for nearly half of the global banking system measured in terms of gross global cross-border banking assets. 4  Other advanced economies include the US, Canada, Japan, Australia, New Zealand, and Switzerland. 5  See Table 1 in Barba Navaretti et al. 2010. 6  Inside the euro zone, cross-border loans have more than doubled from € 152 billion in 1999 to € 361 billion in 2006, while cross-border deposits have increased from € 221 billion to € 316 billion, respectively (see Heuchemer, Kleimeier and Sander (2008)). 7  The regional dimension of cross border banking activities was also emphasised in a speech given by José Manuel González-Páramo (24 February 2006).
As of 2012, euro area inflation started falling again, and has continued to do so to date. Since October 2013, the year-on-year rate of growth of the headline HICP has oscillated between 1% and 0.5%, in spite of the slowly consolidating economic recovery. A situation of low inflation is now common to many advanced economies, creating a moral general puzzle. All in all, the lack of a tight relationship between inflation developments and estimates of slack in economic activity, such as the output gap, is not surprising from the point of view of modern monetary theories. The new Keynesian Phillips curve suggests that, net of erratic factors, inflation is determined by the whole path of expected future output gaps, not just its current level. Hence, economic slack at any given point in time need not be associated with a deflationary episode, if it is accompanied by expectations that the output gap will eventually turn sufficiently positive. In turn, expectations of the future stance of monetary policy play a key role in determining expected future output gaps. The absence of persistent disinflation in 2009 may thus be ascribed to the monetary accommodation imparted by many central banks between the end of 2008 and 2009 through both standard and non-standard tools. The monetary policy easing was commensurate to the size of the shock, i.e.