are not able to cope with these challenges, but we do. each and every time, we prevail. and why is that? because when we work as a union, we can address problems that would overwhelm us if each country tried to address them alone. and sometimes, what seems like a difficulty of working together is simply a reflection of the difficulty of overcoming the challenges thrown in our way. one should not mistake the one for the other. many argue that our societies are not homogenous enough to operate as a union. but others would argue that further integration is necessary to extract all the economies of scale and scope that our union brings. i am firmly in this second camp. and i am firmly among those who believe that we can better protect the interest of citizens in every country by making our union, to use a phrase from your constitutional tradition, “ more perfect ”. bis central bankers ’ speeches the progress achieved over the past three years to stabilise and strengthen the euro area is real. growth is returning. the way forward is well identified. and we will not rest until our monetary union is complete. it is in our interest. it is also in your interest and that of everybody, everywhere. thank you very much. bis central bankers ’ speeches

$ 10 pa every year $ 16 pa in years 1 – 5 cumulative cf $ 140 $ 100 $ 80 npv ( rational ) $ 73 $ 66 $ 63 $ 49 $ 52 $ 55 ranking ( rational ) npv ( myopia ) ranking ( myopia ) in the absence of short - termism, project a is selected. its payouts are back - loaded but significant ; it generates a net excess return of 22 %. 17 short - termism hits such long duration projects hardest. the impatient investor chooses project c. this project delivers lower cashflows but these are front - loaded. in npv terms, the project selected is the worst on offer, whereas the rationally optimal project ranks last. capital allocation is not just sub - optimally low ; it is also skewed towards sub - optimally short - duration projects. ( b ) asset pricing consider now a formal model of multi - period equity price determination. finance theory typically assumes that investors care about both the level and uncertainty of their wealth and are risk averse. in this world, agents require a premium to invest in a company. more formally, the expected return can be written as the sum of the risk free rate and a companyspecific risk premium for company j : 18 the actual return on an investment is the sum of the capital gain and the dividend yield : assuming an efficient market, actual returns differ only from expected returns due to a forecast error which is uncorrelated with expected returns. 19 using this assumption, we can substitute ( 4 ) into ( 3 ) to give an equation for the equity price. the return is $ 73 – $ 60 = $ 13, divided by the cost of investment. this is the case with the capital asset pricing model ( capm ) ( lintner ( 1965 ), sharpe ( 1964 ) ) and arbitrage pricing theory ( ross ( 1976 ) ). under the capm, for example, the company specific risk premium is equal to the company specific beta multiplied by the market risk premium. this means. that is, we assume that bis central bankers ’ speeches. so the price of the security is simply the expected price and dividend in the next period, discounted by the sum of the risk - free rate and the company - specific risk premium. by repeated substitution, this asset pricing equation can be written as a generalised form of ( 1 ) : the current share price is a function of future discounted dividend streams and