the risk - sharing properties of cross - border trade in nominal bonds. 32 moreover, in an environment of price stability but persistent rapid money growth and rising leverage, financial liberalisation and integration could lead to the accumulation of financial imbalances over a number of years, increasing the probability of a boom - and - bust cycle in financial markets with repercussion on price stability over the longer term. this possibility implies that monetary policy should place increased emphasis on the preservation of price stability over longer time horizon extending beyond the medium term. with regard to the analytical framework, globalisation can, in principle, affect market structures, agent ’ s behaviour and inflation dynamics, thus requiring close monitoring and careful assessment of its effects. the economic analysis employed by the ecb to assess the short - to - medium term risks to price stability could be subject to greater parameter or model uncertainty as well as increased measurement error associated with unobservable variables, such as potential output, which underlie the assessment of real activity and inflation pressure. however, the econometric evidence in the euro area has not yet identified significant indirect effects, reflecting structural or behavioural influence of globalisation on inflation dynamics. nevertheless, the complexity of economic analysis has increased and its task has become more challenging, and there is clearly a need to better understand and measure the impact of globalisation. in a period of potentially significant structural change in the product and labour markets, crosschecking the assessment of risks based on economic analysis by monetary analysis becomes more important. this proposition is conceptually correct. unfortunately, the influences of financial globalisation on money and credit growth imply that, in practice, monetary analysis is also becoming more challenging and requires increased sophistication. it is necessary to rely on a wide range of analytical tools and models in order to identify the underlying trend in monetary developments and to assess its implications for price stability. at the same time, as i already stressed, in an environment of increased global financial integration, a deeper and broader analysis of developments in monetary liquidity can enhance our understanding of potential risks to financial stability which, if they materialise, can have repercussions for output volatility and price stability over the longer term. for these reasons, pertinent research at the ecb will be further strengthened, including the analysis of the interactions between financial globalisation and innovation, on the one hand, and monetary and market liquidity, on the other, and their potential implications for monetary policy and financial stability.

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