", Financial Analyst Journal, July. insurance companies were forced to buy State Issued bonds - primary investment. The net effect of financial globalization is likely to be positive in the long run, with risks being more prevalent immediately after countries liberalize. In the period of the gold standard, from around the middle of the nineteenth century to 1914, financial markets had been well integrated at the global level although the architecture of the international financial system was very different from what it is now. In broad terms, these inefficiencies can manifest themselves in various ways, including externality and co-ordination problems. Although derivative markets may be subject to inefficiencies as well, when they function well they can enhance the completeness of financial markets, thus contributing to more efficiency in the allocation of financial resources. 7267, July. Obviously, significant changes in the relative share of the various sectors occur only progressively over time. In an illuminating analysis of how panics unfold, Dupuy (1992) argues that financial markets can make it possible to achieve efficient outcomes in the vast majority of cases, although the pattern of behaviour of economic agents is permanently characterised by a strong tendency to herding in the presence of uncertainty.  Proponents of the Tobin tax argue that it would help reduce financial market volatility while costing little to financial market participants, particularly for long-term transactions. Chen and Knez show that, broadly speaking, when the distance between implicit stochastic discount factors is equal to zero, there are no opportunities of arbitrage between the two markets. When inflation is low and expected to remain low and subject to limited variations over the medium term, the prices of financial assets incorporate little inflation risk premia, in contrast to a situation of high or uncertain inflation and where the central bank lacks credibility. Milken Institute Review. cit. In many cases, economic agents are not able to endogenise the benefits associated with well functioning payment and settlement systems, such as the ability to process transactions with a large number of potential counterparties and in conditions of high safety.  Feldstein and Horioka remarked that, over the long run, developments in domestic saving and investment rates were more closely related than theory would suggest. A survey of the literature on home biases in equity and consumption may be found in Lewis, K. (1999), "Trying to explain home bias in equities and consumption", Journal of Economic Literature, vol. 4, p.1221-1248, August. Globalization: an overview Unprecedented increase in the cross-border movement of goods, services, income, financial flows, and people. In this context, I will examine various indicators of globalisation and, after reviewing the evidence, try and identify an operational definition of the concept of globalisation, which will be useful in order to discuss the implications of the phenomenon for monetary policy.  As mentioned by Alan Greenspan, "there are no signs as yet that the globalisation process is about to stop or, excluding the one-off effect of the introduction of the euro, even slow down perceptibly in the immediate future".  Furthermore, financial flows between the euro area and the rest of the world increased rapidly over recent years.  Obstfeld, M., and K. Rogoff (2000), "The six major puzzles in international macroeconomics: is there a common cause ? 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