see deutsche bundesbank, problems of international comparisons of direct investment flows, monthly report, may 1997, pp 77ff. see deutsche bundesbank, german balance of payments in 1998, monthly report, march 1999, p 43, particularly p 55. see, for example, the conference volume heinz hermann, robert lipsey ( ed ), foreign direct investment in the real and financial sector of industrial countries, berlin 2003. the latest survey of the german chamber of industry and commerce shows that 39 % of respondent enterprises indicated cost savings with respect to wages, taxes and levies as the most important reason for foreign direct investment. furthermore, the liberalisation of capital movements, the creation of a single european market as well as the privatisation of state enterprises have played and continue to play an important role for investing abroad. part of the outcome of this has been the creation of new markets and the provision of market access to foreign investors. one example is the telecommunication industry which in the late 1990s was a very active investor. however, many other service sectors such as financial services and energy were also heavily involved in fdi. the opportunity to gain access to new markets plays a key role for fdi. 10 those enterprises which want to be successful in the world markets must be present on - site. direct investment and external trade often go hand in hand. it is thus not surprising that there is a relatively close correlation between german foreign direct investment and german exports. 11 econometric studies confirm this. 12 at year - end 2002, for example, almost 86 % of german fdi went to industrial countries and just over 14 % to reforming and developing countries. these groups of countries accounted for 82½ % and 17½ % of german exports respectively. particularly, a gravity model analysis of the strong german foreign trade with the central and east european countries shows that german fdi in these countries is an important factor. 13 now i ’ d like to address very shortly the third and final reason for our interest in the topic “ multinationals and international integration ”. it ’ s a political one. as we all know, the focus of the debate on direct investment has shifted towards the effects of fdi on the domestic economy, particularly on employment. in germany, this was sparked by the eu enlargement. this development has directed attention towards the ongoing process of enterprises shifting production to central and eastern europe, a process which has been going on for many years now. a similar debate on the advantages and disadvantage

tried to tackle this puzzle. the distinguishing feature of his paper is the fact that the allocation of risk across households is assumed to be socially optimal. this has implications for the interpretation of high returns in equity markets. all these new findings may help us to make progress in understanding financial markets and in finding a better theoretical framework to discuss financial stability. in this context, let me briefly reflect on whether or not financial stability should be an explicit central bank objective in line with its other objectives. the additional objective of financial stability is explicitly enshrined in many central bank charters. however, the question of how policymakers are to weigh the various objectives against each other is one that so far remains unsettled. 10 an undisputed case is the monetary policy reaction to financial instabilities that are significant enough to cause estimated good price inflation to deviate significantly from target. in this case no conflict arises. there also seems to be agreement on the rapid and resolute use of monetary policy in the case of extreme events which could threaten financial stability. 11 see gjedem, svein ( 2005 ), the macroprudential approach to financial stability, keynote address at the conference “ monetary policy and financial stability ” hosted by the oesterrreichische nationalbank, vienna, may 12, 2005 ; published : see ferguson, roger w. ( 2002 ), should financial stability be an explicit central bank objective? paper presented to an international monetary fund conference on challenges to central banking from globalized financial markets, washington, d. c., september 17, 2002. see gjedem, svein ( 2005 ), the macroprudential approach to financial stability, keynote address at the conference “ monetary policy and financial stability ” hosted by the oesterrreichische nationalbank, vienna, may 12, 2005 ; published : however, other cases are conceivable. think about evolving financial imbalances over a long period of time. how can and how should central banks react? the debate on “ asset prices and monetary policy ” remains open. in his dinner speech yesterday vice chairman roger w. ferguson discussed that issue. taking this one step further, there is the question of how to react in a financial crisis. as lawrence christiano et al have demonstrated, we need to construct more realistic general equilibrium models in the context of financial turbulence. i have already referred to two key elements these models should entail : heterogeneous agents and incomplete markets. charles god