of central banks and monetary policy. the most important lesson from the global financial crisis that we should particularly bear in mind when setting policy options for the avoidance of future crises is that there is a strong linkage between the real and the financial sector and this linkage has to be reflected in setting up a new international financial architecture and monetary policy framework. the real and financial linkage implies that price stability can hardly be separated from financial stability. and, behind the financial crisis, there lurk the imbalances in the real economy. bis central bankers ’ speeches unless we understand the mutual linkages running between the financial and real sectors, we may well not be able to deal with the fundamental problems but end up killing the messenger. 1 by taking this opportunity today, i would like to talk about several matters relating to the harmonization of monetary and macro - prudential policy, which has emerged as a new issue since the global financial crisis. i should also like to say a few words about proposals for strengthening financial cooperation in the asian region, where intra regional trade and financial transactions have been increasing. harmonizing monetary and macro - prudential policy orthodox monetary policy exercises an influence on both price and financial stability but this does not always run in the same direction. in this regard, monetary policy hits a road - block in achieving at once price stability and financial stability. to elaborate, adjustment of the policy rate is something of a blunt instrument and ineffective for achieving financial stability, hence “ financial imbalances ” are better handled using micro - and macro - prudential instruments, such as capital and liquidity requirements. 2 macroprudential policies can contribute to reducing economic costs associated with crisis prevention as it can alleviate policy tradeoff that traditional monetary policy faces. an appropriate mixture of orthodox monetary policy focused on price stability and macro - prudential policy oriented to the prevention of bubble formation would make it possible to achieve price stability and financial stability at the same time with minimal costs to the economy. in order to prevent conflict between monetary policy and macro - prudential policy, governance structure should be clarified. 3 broadly speaking, there are two types of governance structure here. in one the central bank in charge of monetary policy is also responsible for macro - prudential policy. in the other a supervisory agency apart from the central bank is fully in charge of macro - prudential policy. we have recently witnessed a sea change in the governance structures of macro - prudential policy in major financial center

domestic activity collapsed. there are few institutional mechanisms within the economic and monetary union ( emu ) at present to offset the shock. in alberta ’ s case, a rising tide has lifted all boats. that is because the canadian monetary union has what europe does not : a single financial market ; a flexible, national labour market ; and significant fiscal transfers. these smooth the adjustments brought about by the large shifts in relative prices. fiscal federalism helps to share risks despite the equilibrating movement of real provincial exchange rates, shocks to our economy can still have a more significant impact on some regions than others. since monetary policy works at an aggregate level to support aggregate demand, it cannot easily deal with such distributional consequences. m. carney, “ dutch disease, ” a speech delivered at the spruce meadows round table, calgary, alberta, 7 september 2012. internal trade has been supported by the removal of interprovincial barriers following the implementation of canada ’ s agreement on internal trade in 1995. bis central bankers ’ speeches fiscal transfers are thus an important element of a successful monetary union. they are sizeable in canada, representing 8 per cent of gdp across all levels of government ( charts 6 and 7 ). canada ’ s equalization program helps stabilize the impact of asymmetric shocks. for example, between 2006 and 2011, federal support programs, including equalization payments and canadian social and health transfers, grew more rapidly for provinces whose economies were hardest hit by the crisis ( chart 8 ). 3 the employment insurance program also shares risk. through transfers to 2 per cent of the working - age population, the program particularly benefits provinces with higher unemployment rates ( chart 9 ). in the medium term, one of the building blocks of european fiscal federalism could be a paneuropean employment insurance scheme built on a common european labour market. this would reduce impediments for those looking across the continent for work, while providing a cross - country automatic stabilizer. labour market flexibility for canada and canadians to work, workers must be able to move to different jobs, and wages must adjust to help maintain full employment. by international standards, the canadian labour market is highly flexible, although there is still room for improvement. 4 our labour mobility as a whole is similar to that in the united states. by some estimates, the canadian labour market is almost four times as flexible as the european labour market. 5 an obvious example of this flexibility is the way that canadians have responded to the higher wages and