sharing and supported exuberance in the financial sector. “ shadow banking ” ( the english insurance companies and international investors ) played a pivotal role. as liquidity stress morphed into solvency problems, the bubble burst with a dramatic international stock market crash. you can see how the mechanics of this crisis do not differ much from those of the recent great financial crisis, and all other crises traced through history by charles kindleberger. 3 p. hakkarainen ( 2015 ) finance cycles and macroprudential tools - the case of finland within the euro area. speech at the seventh high - level policy dialogue of the eurosystem and latin american central banks, madrid, 11 november. r. frehen, w. goetzmann and g. rouwenhorst ( 2013 ) new evidence on the first financial bubble. journal of financial economics. vol. 108 ( 3 ), pp. 585 – 607. bis central bankers ’ speeches my second point is that there is a consensus that macroprudential policy is an essential toolkit but its effects and transmission channels are still not fully understood. since the 1930s, policymakers have used prudential means to enhance system - wide financial stability, with a view to limiting macroeconomic costs from financial distress. some measures taken in the 1930s, 1950s and 1960s to support the domestic financial system and to influence the supply of credit have been viewed as macroprudential tools. 4 still, when andrew crockett pleaded for a macro perspective on prudential policy in 2000, the idea was controversial. 5 it took the great financial crisis to forge a consensus on the importance of macroprudential policy. as pentti put it, “ macroprudential policy is needed in addition to other economic policies. it is very important that authorities have also macroprudential instruments available. now, after the great financial crisis, we have instruments and framework in place. ” 6 but in his usual sharpness pentti also highlighted the challenges to using macroprudential tools : “ the effects of the said instruments are uncertain and second, processes for their usage are unnecessarily complicated. these points are intertwined. ” 7 my third point – and here i would like to elaborate a bit – is that we should not look at macroprudential policy and its effectiveness in isolation. as pentti argued in a speech last year, it is important to coordinate macroprudential policy and monetary policy

the possibility that the united kingdom could end up with a no - deal brexit, the possibility that policy rate hikes in the united states could lead to capital outflows from emerging economies, and various geopolitical risks including those in the middle east. although the chinese economy has continued to see stable growth on the whole, relatively weak developments have been observed in part, as seen in the recent deceleration in the pace of improvement in business sentiment in the country's manufacturing sector. whether this is due to the effects of the trade friction or a slowdown in domestic demand resulting from factors such as deleveraging is something that needs to be investigated. meanwhile, the stock market has continued to be somewhat unstable. the fluctuations in the stock market are likely to be partly attributable to changes in perception of the various risk factors surrounding the global economy that i mentioned earlier. the bank will continue to carefully examine developments in global financial markets and in the various underlying risk factors. ii. efforts toward improving productivity robustness of the economy as just explained, there are various risks surrounding the outlook for economic activity. as i will elaborate later, however, the robustness of the domestic and overseas economies to shocks appears to have increased. one of the reasons for this is the efforts made by firms so far, and i think that it is necessary for these efforts to continue further. let me now focus on the efforts that firms have made so far toward improving productivity and outline how continuing improvement in productivity can be expected to boost the growth potential of japan's economy and also address structural challenges such as the declining and aging population. at this meeting exactly a year ago, i brought up the problem of labor shortage and mentioned that japan's economy can be expected to overcome this constraint and continue to grow. firms have been making substantial progress so far in this regard. amid the tightening of labor market conditions in the past few years, many firms have been actively undertaking labor - saving and efficiency - improving investment and streamlining business processes to establish more efficient business operations. these efforts have been boosted by the technological progress especially in information technology in recent years, as seen in the significant increase in software investment in sectors such as construction, retailing, as well as accommodations, eating and drinking services, where labor shortage is becoming acute ( chart 8 ). as just seen, positive efforts to improve labor productivity in response to the recent tightening of labor market conditions are spreading among many firms in japan. however, quite