which can be characterised as accommodative over the long term, as evidenced by buoyant credit and money growth over a prolonged period of time. 22 a strong and persistent expansion of monetary liquidity could fuel or even trigger an asset price boom. during the bust phase of the asset price cycle, the associated credit crunch might lead to an economic downturn and a negative deviation from the objective of consumer price stability, and possibly even to deflation, which would exacerbate a financial crisis. an environment of abundant monetary liquidity can affect the risk - taking behaviour of investors and financial intermediaries. ample monetary liquidity and financial market liquidity 23 could be indicators of the ongoing execution of arbitrage strategies, such as carry trades, and short - termist or myopic “ search - for - yield ” behaviour, which can temporarily distort the pricing of risk. 24 it is not low inflation itself but rather low rates of return, which could trigger “ searching - for - yield ” investment strategies, providing financial market liquidity to previously much less liquid markets and affecting relative asset prices. in fact, ecb research shows that there is evidence that monetary liquidity shocks have played a role in driving asset prices, particularly housing prices across oecd countries, during the boom phase of asset price cycles, and that these shocks have also to explain the negative effects on economic activity during the subsequent bust phase. 25 the intriguing aspect of this hypothesis, and of the associated empirical findings, is that the monetary policy stance might be perfectly appropriate for and consistent with the preservation of price stability over the medium term. nevertheless, the potential implications for asset price boomand - bust - cycles could signal that the monetary policy stance could prove accommodative for maintaining price stability in the long run. the jury is still out concerning the final verdict as to which of the two views is right. in my opinion, however, one general conclusion is valid : a monetary policy strategy which carefully monitors money and credit developments is likely to contribute to the detection of potentially destabilising financial imbalances is likely to help detect potentially destabilising financial imbalances at an early stage. v. conclusions our discussion on how to manage globalisation comes at a difficult moment in time, a challenging period for financial markets and institutions worldwide, and a period of heightened uncertainty about the potential impact of the ongoing reappraisal of risk on the real economy. this makes this joint intellectual

from 1 to 11 % [ chart 10 ]. collateralised debt obligations ( cdos ) are another major type of security used to transfer credit risk. the global issuance of cdos more than tripled between 2004 and 2006 [ chart 10 ]. one prominent feature of the development of the financial system is that it has become much more “ leveraged ”, as indicated by the ratio of total monetary and financial assets relative to the monetary base ( central bank money ). financial globalisation and economic growth what have been the effects of financial globalisation and development on the efficiency and stability of the financial system, on trend economic growth and on output and financial market volatility? let me first examine the impact on efficiency, growth and output volatility. the available empirical evidence supports the view that the development of the financial sector, as measured by financial market size and other indicators of its features and sophistication, has had positive effects on the efficient functioning of product markets and has fostered ( total factor ) productivity gains and output growth. 14 the evidence on the impact of financial globalisation on economic growth is not as conclusive or sufficiently robust. 15 this partly reflects the fact that the impact is conditional on the macroeconomic policies pursued as well on the institutional and regulatory framework in place, which makes it difficult to isolate empirically and estimate its net contribution. moreover, the impact of financial globalisation on growth may take some time to become visible as it exerts its influence through various channels, some of which involve indirect effects. indeed, a new approach which emphasises the indirect effects of financial globalisation growth by promoting the development of the financial sector, by strengthening competition and by enhancing market discipline on macroeconomic policies suggests that the total impact on growth of financial globalisation through these indirect effects can be significant. in particular, for advanced economies their integration into global financial markets fosters ( total factor ) productivity growth and improves risk - sharing. moreover, there is some evidence that financially integrated economies can see ferguson et al. ( 2007 ), ch. 9. see hartmann et al. ( 2007 ). see kose, prasad, rogoff and wei ( 2006 ). absorb shocks – and can tolerate a higher level of volatility – without this volatility having an adverse effect on growth. 16 globalisation and the volatility and liquidity of financial markets an important issue for financial system stability is whether financial globalisation has been – or can be – a key