7, on the propagation of the sub - prime shock to other markets. market adjustment is still ongoing. nevertheless, i would like to highlight four areas that are also pertinent to the issues of financial integration and development we are discussing. • first, the underlying causes and triggers are to be found in the price dynamics of the us housing market and the excesses and shortcomings ( in the practices ) in the us sub - prime mortgage market. so, a main determining factor of the financial market turbulence is that same one – property price overvaluation – that characterised previous episodes, as emphasised by kenneth rogoff. • second, weaknesses in the functioning of the market for structured finance products. these included valuation uncertainties due to the complexity of many products, the imperfect information available about the underlying asset characteristics, inadequate appreciation by investors of the embedded risks, and excessive reliance on the ratings of such products by credit rating agencies. • third, weaknesses in the implementation of the “ originate - and - distribute ” model by banks and in the chain of distribution and acquisition of credit risks. these shortcomings included inappropriate incentive structures for banks, as well as other financial entities and agents in the securitisation process, which fostered moral hazard and contributed to the inadequate assessment and management of credit and funding - liquidity risk. • fourth, the role and features of new financial entities – the off - balance sheet conduits and structured investment vehicles ( sivs ) – which were linked to banks through management and financing, and played a key role in the transmission of tensions from the structured finance product markets to the money markets, as a result of the maturity mismatch on their balance sheets and the associated funding liquidity risk. the creation of these investment vehicles and the associated substantial off - balance sheet exposures of banks to the structured credit products was the unintended consequence of regulatory arbitrage, and reflected the poor assessment and management of the funding and market liquidity risks as well as the reputational risks faced by a number of banks. overall, the weaknesses in the functioning of the financial system revealed by the financial market turmoil lead to the general conclusion that financial integration and development have not been accompanied by adequate appreciation of risks, effective risk management and sufficient market discipline. the divergence between financial development, on the one hand, and sufficient discipline and effective risk management, on the other, should be bridged. this should be done not by measures that stifle financial innovation

dimitar bogov : addressing structural rigidities in view of monetary policy transmission effectiveness address by mr dimitar bogov, governor of the national bank of the republic of macedonia, at the 4th research conference “ addressing structural rigidities in view of monetary policy transmission effectiveness ”, skopje, 23 april 2015. * * * dear governors, your excellences, ladies and gentlemen, dear guests, it is my pleasure to welcome you all, on our fourth research conference, entitled addressing structural rigidities in view of monetary policy transmission effectiveness. just like the previous years, we hope that the topic of this conference is both interesting and challenging to provide an interactive framework for discussion and research - based policy advices for the central bankers. structural rigidities, indeed, are related to a wide range of economic segments. therefore, today we will try to tackle different economic issues, enlightening their importance for the monetary policy transmission effectiveness. transition economies have undergone many structural changes in the ongoing reshaping of the economies, which to some extent have influenced the monetary policy decision making or monetary policy transmission channels. globalization is yet another factor that tends to produce changes in the economic structure and at the same time, affects the markets functioning or economic agents ’ behavior. the labor market rigidities, wage and price settings, financial market imperfection, impact of foreign direct investments and many other issues must be appropriately taken into consideration in the monetary policy implementation and probably we have all put in a great deal of effort to accommodate our models to capture these specifics. the last global crisis, with its overall severity, time length and countries coverage reactivated the importance of structural issues for the advanced economies too, pointing to the fact that not always same measure fits any situation, not always same risk affects in a same way and not always same threshold is valid for everyone. nowadays, we speak about flexible and innovative monetary policy, designed on a broadly based information platform, incorporating structural features of the economies and all specifics of the monetary policy transmission mechanism. since the onset of the crisis, we have tried to better incorporate financial stability aspects into monetary policy decision making. in addition, we learnt that zero lower bound rate in the advanced economies or historically lowest interest rates in emerging economies were not able to revive credit growth, until we moved towards renovating our toolkit. nonstandard monetary policy measures in different modalities have been widely used by the central banks around the globe during the crisis period, with the ultimate goal to capture countries ’ specific