stable. 4. capital markets union – the day after tomorrow? the european banking union is definitely a major step forward in designing a better framework for the european monetary union. however, europe should broaden its view beyond the banking sector. consequently, the eu - commission has proposed to establish a european capital markets union. following monetary union and the banking union, this will be the third major step of financial integration in europe. in essence, the european capital markets union has two objectives. the first objective is to increase the share of capital markets in the funding mix of the real economy. the second objective is to integrate capital markets more closely across borders. some people relate the first objective to the question of whether a capital markets - based financial system is superior to a bank - based financial system. well, to sum up the empirical evidence : it depends. it depends on a number of factors and country - specific characteristics, which makes it hard to provide a general answer. nevertheless, the recent crisis shed light on these issues from another angle. a system in which the real economy relies on a single source of funding will most certainly run into trouble when that source dries up – regardless of whether it is bank funding or capital market funding. therefore, it is not a question of “ either / or ”. the objective of the european capital markets union is not to abandon bank - based funding but to supplement it with capital markets - based funding. and in europe above all places there is ample room to do so. the european stock market is only 60 % the size of the us stock market when measured in relation to gdp. likewise, the european market for venture capital is 20 % the size of the us market, and for securitisations the percentage is even lower. in the end, it comes down to the uncontested argument of diversification. increasing the share of capital markets will improve and broaden access to funding particularly for small and medium - sized enterprises which form the backbone of many european economies. at the same time, it will improve the matching of investors to financial risk, thereby increasing the efficiency of the financial system. as a result, the financial system will be able to better support sustainable economic growth. the second objective of the european capital markets union is to improve the integration of capital markets in the entire european union. one of the main arguments is that integrated capital markets can improve private risk sharing. the technical question is : to what degree does a shock to the economy affect consumption? empirical

in particular to a policy rule of the taylor type, which places a relatively large weight on the output gap. orphanides and others have shown that in the seventies and eighties, estimates of the us output gap have been subject to large and persistent measurement errors. 8 on average, there has been a downward bias of this measure of economic activity which in turn led to a monetary policy of the fed that - with hindsight - must be judged as too expansionary. as a consequence, the late 1970s and the early 1980s have been characterized by high inflation rates in the usa. i believe that the bundesbank managed to prevent this kind of problems. our research has shown that the bundesbank did not assign an important role to the level of the output gap which is especially prone to the real - time data problem. instead, we focused on deviations of money growth from target, on deviations of the inflation rate from the price norm and on deviations of the growth rate of real output from the growth rate of potential output. 9 this approach is much less subject to measurement errors than one that uses the level of the output gap. see coenen, g., levin, a. and wieland, v. ( 2005 ) „ data uncertainty and the role of money as an information variable for monetary policy “, european economic review ( 49 ), pp. 975 - 1006. for the usa, see e. g. orphanides, a. ( 2003 ), the quest for prosperity without inflation, journal of monetary economics, 50 ( 3 ), s. 633 – 663. for the uk, see e. g. nelson, e. and nikolov, k. ( 2003 ), uk inflation in the 1970s and 1980s : the role of output gap mismeasurement, journal of economics and business, 55, s. 353 – 370. for germany, see gerberding, c., seitz, f. and worms, a. ( 2005 ), how the bundesbank really conducted monetary policy : an analysis based on real - time data ; north american journal of economics and finance ( forthcoming ). see gerberding, c., seitz, f. and worms, a. ( 2005 ), how the bundesbank really conducted monetary policy : an analysis based on real - time data ; north american journal of economics and finance ( forthcoming ). 3 / 4 based on our previous research on “ how the bun