- regional trade rose from 28 % to 39 % during the same period. overall, intra - regional trade in south - east asia and east asia has about the same volume as intra - regional trade in europe and north, which is significantly more than either regions at the outset of their integration efforts. these developments reflect the deeper and considerably strengthened trade and investment linkages within the asian region. of greater significance in this recent decade is that regional efforts have transcended trade and investment areas toward an intensification of financial cooperation. the importance of regional financial collaboration was recognised, not only to provide a platform for regional development through channelling part of the high savings in asia to be invested in asia, but also as a safeguard against the vagaries of global markets. extensive efforts have now been put in place in the areas of surveillance, liquidity support arrangements, crisis management framework, the development of financial markets and other financial infrastructure, capital account liberalisation, financial services liberalisation, development of regional payment and settlement systems, as well as training and capacity - building. broadly, economic and financial surveillance, aimed at identifying regional risk sources and vulnerabilities have been undertaken to enhance vigilance as prevention to potential financial crises and enable prompt corrective actions. several forums, including the executives'meeting of east asia and pacific central banks ( emeap ), asean and asean + 3, undertake extensive discussions on these issues. an integrated regional crisis containment, management and resolution framework has also been established, which is also complemented with mutual support arrangements and liquidity support mechanisms, such as the chiang mai initiative ( cmi ) launched 2000. the cmi, comprising of the asean swap arrangement and a network of bilateral swap arrangements among the asean + 3 countries, makes available financial resources in a timely manner to members facing temporary balance of payments and short - term liquidity constraints. it was first agreed in 2005 that the cmi would be multilateralised in all main components of the arrangement, and more recently in 2009, the total size of the facility has been increased to usd120 billion. considerable efforts have also been placed in regional financial market development, especially for a deeper and more liquid secondary bond market. on the supply side, the asian bond market initiatives ( abmi ) seeks to develop deeper and more liquid capital markets that facilitate the channelling of the large pool of savings in the region to fund productive investments, thereby enabling further regional economic development. recently, the establishment of a credit guarantee

i asked two questions. first, by how much do changes in monetary policy affect equity prices? as you will see, we focus on changes in monetary policy that are unanticipated by market participants because anticipated changes in policy should already be discounted by stock market investors and, hence, are unlikely to affect equity prices at the time they are announced. we find an effect of moderate size : monetary policy matters for the stock market but, on the other hand, it is not one of the major influences on equity prices. our second question, both more interesting and more difficult, is, why do changes in monetary policy affect stock prices? we come up with a rather surprising answer, at least one that was surprising to us. we find that unanticipated changes in monetary policy affect stock prices not so much by influencing expected dividends or the risk - free real interest rate, but rather by affecting the perceived riskiness of stocks. a tightening of monetary policy, for example, leads investors to view stocks as riskier investments and thus to demand a higher return to hold stocks. for a given path of expected dividends, a higher expected return can be achieved only by a fall in the current stock price. as we will see, this finding has interesting implications for several issues, including the role of stock prices in transmitting the effects of monetary policy actions to the broader economy and the potential effectiveness of monetary policy in " pricking " putative bubbles in the stock market. i will come back to these issues at the end of my talk. i start, however, with the problem of measuring the effect of monetary policy on the stock market. bernanke and kuttner ( 2003 ) ; http : / / home. earthlink. net / ~ kkuttner / bernanke - kuttner. pdf the effect of monetary policy actions on the stock market normally, the fomc, the monetary policymaking arm of the federal reserve, announces its interest rate decisions at around 2 : 15 p. m. following each of its eight regularly scheduled meetings each year. an air of expectation reigns in financial markets in the few minutes before to the announcement. if you happen to have access to a monitor that tracks key market indexes, at 2 : 15 p. m. on an announcement day you can watch those indexes quiver as if trying to digest the information in the rate decision and the fomc's accompanying statement of explanation. then the black line representing