Annual securitisation is about 3 trillion US dollars a year in the US and about 500 billion euro in Europe. In both areas, mortgage-backed securities account for the bulk of the total. With respect to credit risk transfer instruments, the increase in the notional value of global credit default swaps has been phenomenal, from 90 billion US dollars in 2001 to 34 trillion US dollars in 2006. Over the same period, the share of credit default swaps in the overall derivatives market increased from 1 to 11% [Chart 10]. Collateralised debt obligations (CDOs) are another major type of security used to transfer credit risk. The global issuance of CDOs more than tripled between 2004 and 2006 [Chart 10]. One prominent feature of the development of the financial system is that it has become much more “leveraged”, as indicated by the ratio of total monetary and financial assets relative to the monetary base (central bank money). Financial globalisation and economic growth What have been the effects of financial globalisation and development on the efficiency and stability of the financial system, on trend economic growth and on output and financial market volatility? Let me first examine the impact on efficiency, growth and output volatility. The available empirical evidence supports the view that the development of the financial sector, as measured by financial market size and other indicators of its features and sophistication, has had positive effects on the efficient functioning of product markets and has fostered (total factor) productivity gains and output growth.
However, it is difficult to evaluate the extent of these structural changes and to gauge how quickly their impact will be felt on medium-term growth, particularly at an early stage. In addition to the specific factors resulting from the introduction of the euro, the rapid change in information and communication technology is likely to add further potential for structural changes in the economy. The possible emergence of a "New Economy" may raise the economy's productive capacity temporarily or on a more permanent basis. Much faster data transfer and the increased transparency of information in a knowledge-based society could enhance efficiency. Even if some of the euphoria surrounding the start of a new economic era has dissipated, as could be seen in stock market developments over the last few months, there remains a remarkable potential for economic change in the future. To date, however, clear evidence of positive effects on the supply side, which may lead to a temporary or even permanent higher potential output growth, is still lacking for the euro area. In addition, it should be borne in mind that the expectation of higher growth and positive wealth effects may also lead to inflationary pressures from the demand side of the economy. Therefore, the implications of the "New Economy" for monetary policy are far from clear. Monetary policy-makers, whose aim is to maintain price stability, need to exercise particular caution in such an environment of change.