conflict when the real and financial cycles are in opposite phases. while lvrs have a financial stability goal, they have been an important consideration in our monetary policy assessment. we believe the dampening impact of lvrs on house price inflation and credit, and the diminished “ wealth effects ” on spending associated with it, have reduced consumer price inflation pressures by an amount similar to a 25 – 50 basis point increase in the ocr. in essence, the reduction in housing pressures allowed us to delay the tightening in interest rates, thereby reducing the incentive for any additional capital inflows into the new zealand dollar in search of higher yields. we have seen little financial sector disintermediation to date, and have indicated that the lvr speed limit is not intended to be permanent. it will be removed once housing market pressures have moderated and when we are confident there will not be a resurgence in bis central bankers ’ speeches house price inflation. we will be reviewing these criteria and their implications for lvr restrictions in next month ’ s financial stability report. my final comment is on liquidity risk liquidity risk and rollover risk are often the two major financial shocks that hit economies, and especially smaller economies, during episodes of financial market contagion. unsurprisingly, given current yield curves, debt issuance almost everywhere has shifted towards longer - term funding. we still have much to learn around liquidity risk and the emergence of “ black holes ” in funding and asset markets. liquidity risk is a key concern for countries with large external borrowing needs, especially if investors become skittish, trading volumes begin to thin and some price gapping occurs. left unabated, liquidity problems can mutate into solvency problems. the reserve bank introduced a prudential liquidity policy in april 2010. this policy includes minimum liquid asset requirements, and a minimum core funding ratio. like the basel iii net stable funding requirement scheduled for 2018, the policy requires a minimum proportion of total lending to be funded by more stable “ core funding ” instruments such as retail deposits and long term borrowing ( beyond one year ). in new zealand, the commercial banks ’ core funding ratios fell to around 60 percent prior to the gfc. today the banks ’ core funding ratios stand at around 85 percent ( against a minimum of 75 percent ) and the vulnerability of new zealand banks to developments in offshore wholesale funding markets has been substantially diminished. concluding comments one of the eight lucky signs of buddhist philosophy, dr

the environment or on the poorest countries. what, then, is new about the current episode? each observer will have his or her own perspective, but, to me, four differences between the current wave of global economic integration and past episodes seem most important. first, the scale and pace of the current episode is unprecedented. for example, in recent years, global merchandise exports have been above 20 percent of world gross domestic product, compared with about 8 percent in 1913 and less than 15 percent as recently as 1990 ; and international financial flows have expanded even more quickly. 3 but these data understate the magnitude of the change that we are now experiencing. the emergence of china, india, and the former communist - bloc countries implies that the greater part of the earth's population is now engaged, at least potentially, in the global economy. there are no historical antecedents for this development. columbus's voyage to the new world ultimately led to enormous economic change, of course, but the full integration of the new and the old worlds took centuries. in contrast, the economic opening of china, which began in earnest less than three decades ago, is proceeding rapidly and, if anything, seems to be accelerating. second, the traditional distinction between the core and the periphery is becoming increasingly less relevant, as the mature industrial economies and the emerging - market economies become more integrated and interdependent. notably, the nineteenth - century pattern, in which the core exported manufactures to the periphery in exchange for commodities, no longer holds, as an increasing share of world manufacturing capacity is now found in emerging markets. an even more striking aspect of the breakdown of the core - periphery paradigm is the direction of capital flows : in the nineteenth century, the country at the center of the world's economy, great britain, ran current account surpluses and exported financial capital to the periphery. today, the world's largest economy, that of the united states, runs a current - account deficit, financed to a substantial extent by capital exports from emerging - market nations. third, production processes are becoming geographically fragmented to an unprecedented degree. 4 rather than producing goods in a single process in a single location, firms are increasingly breaking the production process into discrete steps and performing each step in whatever location allows them to minimize costs. for example, the u. s. chip producer amd locates most of its research and development in california ; produces in texas, germany, and japan ; does final processing and testing mad