roots in 16th century spain. rising inflation and the dependency on gold and silver imports are mentioned as causes of multiple bankruptcies and economic crashes. 6 following the agenda set by the 16th century globalisation episode, my speech is divided into two main parts. the first part deals with the effects of globalisation on inflation dynamics and price stability from a monetary policy perspective. i will elaborate on the likely impact on product and labour markets as well as the impact on monetary aggregates and financial markets. in the second part, i will reflect on the link between globalisation and financial stability again focusing on the role of central banks. in this context, i will point to the risks associated with global imbalances and asset price boom - and - bust cycles. i will conclude by addressing two pertinent questions, namely ( i ) whether central banks need to adapt their monetary policy strategies in order to cope with the challenges of globalisation ; and ( ii ) whether monetary policy has become less effective as a consequence of globalisation. in 1778, catalonia was allowed to trade with the americas by decree of charles iii. adam smith estimated that “ the discovery of the abundant mines of america reduced, in the sixteenth century, the value of gold and silver in europe to about a third of what it had been before. ” see smith, 1776. hamilton, 1934. bernholz and kugler, 2007. navarro, one of the most famous scholars of the school of salamanca wrote in 1566 that “ other things being equal, in countries where there is a great scarcity of money, all other saleable goods, and even the hands and labour of men, are given for less money than where it is abundant. ” see, for example, munro, 1994. as i have already mentioned the term globalisation a number of times, and many more references will follow, let me briefly define it in fairly broad terms : it is the process of rapidly increasing global economic integration. over the past decade, this process involved, and is evidenced by, the unprecedented and pervasive growth in the cross - border trade of goods and services as well as of financial and real assets, but it also involves the swift transfer of technologies, information and ideas. ii. globalisation, price stability and monetary policy ii. 1. impact of globalisation on product and labour markets let me start by briefly reviewing both the theoretical arguments and the empirical evidence pertaining to the effects of globalisation on product and labour markets. it would be too easy

ahead, the key question is what can be done to prevent the emergence of imbalances in the future. after the current crisis experience, the markets can be expected to better assess the differences in the risks to monetary union members and to increase both the spreads and the cost of capital when those risks start to rise. market discipline as a result of proper credit risk management can be an important mechanism for preventing the emergence of imbalances. policy measures are nevertheless required and are of the same nature of those that i have already mentioned with respect to the correction of the existing imbalances, in particular those with regard to fiscal policy and unit labour costs. after all, viewed from a macroeconomic perspective, the successful participation in a monetary union implies an anticyclical fiscal policy and an appropriate evolution of wage costs in line with the development of relative productivity. i believe that two other policy points also deserve to be mentioned. first, i think that macro - prudential policy has an important role to play in preventing and / or mitigating the effects of imbalances in the financial system. the whole panoply of well - known analytical tools has to be used : sets of financial indicators, early - warning systems, stress tests, contagion models, macro - models that include the proper feedback between the financial sector and the real economy. careful attention in this process must be paid to leverage indicators of the different types of economic agents : households, firms, banks and the state. ensuring financial stability implies avoiding excessive debt and credit growth. the idea of macro - prudential policy is not new. rather, what has changed is the institutional framework in which these policies can be set in place. in europe, the establishment of the esrb will provide the mechanism for identifying imbalances that endanger financial stability and create systemic risks at the level of the european union. the esrb membership reflects the composition of the 27 members of the general council of the ecb and, although limited to issuing warnings and recommendations, the participation in the board of one representative of the commission and the three chairs of the future european supervisory authorities ensures that proper action will follow the decisions of the esrb. it is, in fact, the whole european system of financial supervision that will be responsible for guaranteeing that the functioning of both the financial sector and asset markets is not impaired to an extent that creates fundamental risks to the financing of the economy. the second point with respect to policies appropriate for avoiding future im