stage a number of possible hypotheses might be put forward : • the combination of lower equity and commodity prices might be signaling a weaker global outlook ; • it might simply be an indication that equity markets had previously been overvalued and in need of a correction ; or • the equity price falls might in part be an irrational response to commodity price falls and other economic data, or at least contain an element of overreaction to genuine signals. most likely there is an element of validity in more than one of these, and no doubt other hypotheses can be put forward as well. as i said, i don ’ t think it is possible to be definitive about these things, but it is relevant to note that market and media commentary often errs on the side of being unjustifiably gloomy. a few points can be made on that score : • first, as always, the recent equity price movements have to be put in perspective. this is not the first bout of nervousness in these markets : in the advanced economies there was a similar one late last year, from which markets subsequently recovered, and the recent declines reverse only a small part of the cumulative gains during the post - crisis recovery period. • second, there seems to have been relatively little new economic data in the early part of this year to trigger a significant reassessment of the global outlook. and even though the chinese economy has been slowing, it is still growing at a reasonable rate. • third, the hypothesis that falling equity and falling oil prices are inter - related responses to a weakening in global demand is hard to sustain. the falls in oil prices seem to be mainly driven by strong supply, not weak demand, as indeed has been the case for a number of other commodities such as iron ore. consistent with that, other non - energy commodity prices have been relatively stable during this recent period when oil prices have continued to fall. this has important implications for the general outlook. while an oil supply expansion could be expected to have a range of complicated effects on producers, consumers and holders of energy assets, it would normally be considered a net positive for the world as a whole. i think these points argue against putting an excessive focus on recent market movements. but, that said, there has clearly been an increase in market volatility around the word in recent times and a heightened focus on financial risks. implications of the global risk environment for australia at this point it is useful to ask how

these episodes led to strains in financial markets and increases in risk pricing, and they weighed heavily on confidence and on the pace of recovery. with the euro area accounting for just under one sixth of the global economy, this in turn acted as a significant drag on global growth. the second factor is that, other things equal, history suggests that recoveries from financial crises typically take longer than those from other types of business cycle events. it takes time to repair balance sheets, to reduce excessive leverage and to unwind the asset market imbalances that might be left behind by a crisis ; and it takes time to reverse the damage to trust and confidence. one important recent study 2 found that the average duration of impact from financial crises across a range of countries over the past two centuries has been around five years. since this current episode has been more severe than most, it is not surprising that its after - effects have lasted even longer. an exacerbating factor, too, has been the international dimension. when a financial or a banking crisis occurs in a single economy, or in a relatively small number of countries, exchange rate depreciation is often part of the market response and part of the recovery mechanism. but there is obviously much less scope for that mechanism to work when a crisis affects large parts of the global economy simultaneously. reinhart cm and k rogoff ( 2009 ), this time is different : eight centuries of financial folly, princeton university press, princeton. bis central bankers ’ speeches taken together i think these factors go a long way towards explaining the drawn - out nature of the global recovery to date – even though, as i said, economic conditions in recent times have been much better than they were a few years ago. policymakers around the world have been responding to this situation on a number of fronts. interest rates were reduced to near zero ( or even slightly below zero ) in many advanced economies to support recovery and assist in balance sheet repair, and they remain very low. in europe, significant institutional reforms are being made to strengthen the stability of the euro area ; these are aimed at getting banking and crisis - management arrangements across the area to function in a more unified way that makes them more robust to shocks in the future. and globally, there is an extensive program of reform underway, for example in banking and securities regulation, to build resilience in our financial systems. australia has been very much a part of that process. a related development in this period is that there has been