While this is most visible for financial centres and very open small economies where global firms are large relative to the size of the domestic economy, these factors are also increasingly relevant for understanding the macroeconomic statistics of the euro area and other large economies. Complex cross-border production and ownership arrangements, such as contract manufacturing and merchanting, affect the measurement of the balance of payments and the national accounts through the booking of exports of goods that are neither produced domestically nor cross the border of the domestic economy. Moreover, transfer pricing – the pricing of the various transactions involved in intragroup crossborder production arrangements – substantially affects the amount and location of profits booked. Over time, the location of corporate structures has become increasingly mobile. This has been partly driven by fiscal and regulatory arbitrage incentives that motivate the re-domiciliation of headquarters and the geographical optimisation of the legal registration of intangible assets such as patents and copyrights. Intellectual property products (IPPs) have a high degree of cross-border fungibility and are of central importance not only for digital companies but also for other industries, such as pharmaceuticals. IPPrelated transactions, which primarily reflect the operations of a small number of large companies, have had a marked effect on the services component of the euro area current account balance and were also  visible – especially before the pandemic – in the euro area national accounts, where these appear as high imports of services and gross fixed capital formation (Charts 1 and 2).
Philipp M Hildebrand: Financial Stability and Hedge Funds: Effective and Ineffective Supervision Speech by Mr Philipp M Hildebrand, Member of the Governing Board of the Swiss National Bank, Diskussionsforum «Nachbarn Deutschland-Schweiz: Impulse für die Zukunft», Berlin, 9 November 2005. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). *  *  *  The hedge fund industry has grown rapidly over the past few years and it has become an important segment of global financial markets. The possibility to use leverage and a high degree of flexibility are key elements of a broad range of investment strategies which have made the hedge funds industry very profitable. Hedge funds have been an important source of innovation in the traditional asset management industry and they have rendered financial markets more liquid, more efficient and more flexible. Nonetheless, the rapid growth of the industry and the excessive use of leverage may result in potential systemic risks which are relevant to central banks, unlike prudential matters. Overall, industry leverage is difficult to measure. However, several studies suggest that it is lower than at the time of the near collapse of LTCM in 1998. Even so, temporary excessive levels of leverage with single hedge funds can not be ruled out completely. A crisis in the hedge fund industry might therefore spill over to their primary trading partners, the major investment banks.