We need effective frameworks to ensure financial globalisation contributes to risk diversification, consumption smoothing and efficient intermediation of productive capital across international borders. The global community should decisively address the risks posed by large and volatile short-term capital flows. Not enough is being done at the global level to manage the negative spill-overs to recipient countries. Here, the IMF can play its role as the trusted policy advisor. The Fund can do more to ensure that global financial aspirations consider diverse circumstances and national objectives. Efforts to encourage a more inclusive process in setting global financial standards and initiatives are positive steps in the right direction. Perhaps the most important development of late is the unravelling of a ‘one-size-fits-all’ approach to managing international financial flows. Again and again, previous experiences in crisis management strongly suggest that each crisis at any given time requires a tailor-made solution, given the specificity of each economy’s social, economic and political landscape. The world is changing so rapidly that many countries are forced to retool their nations to embrace new opportunities and unlock this growth potential. Previous successful solutions and policies do not guarantee success and relevance. Throughout episodes of crises, a key lesson policymakers learnt was to have flexibility and courage to explore and implement all available policy tools in preserving macroeconomic and financial stability. At one time, unorthodox and unprecedented policies were considered heresy. Now, they are considered necessary. I thus welcome the recognition within the IMF for a more progressive view on macroprudential and capital flows measures.

If the monetary authority were to commit to a program 1/3  BIS central bankers' speeches  of asset purchases until some economic objective is reached and, at the same time, were to make it clear that the policy rate would not begin to rise until the asset purchase program were completed, these steps might help anchor expectations about the likely path of short-term rates more effectively. The Federal Reserve’s third round of LSAPs, which was open-ended, was an important innovation of policy that the paper might have discussed in greater detail. I also don’t agree with the paper’s conclusions about agency MBS purchases. Such purchases do not represent “credit easing” as argued in the paper. The government’s interventions to support Fannie Mae and Freddie Mac have made it clear that there is no credit risk in the Federal Reserve’s purchase of such obligations. Also, the authors don’t acknowledge that the ability to purchase agency MBS has two benefits. First, it enables the Federal Reserve to purchase longer-duration assets at a faster pace without disrupting market functioning. This facilitates larger LSAP programs, when a larger program is viewed as necessary. Second, it opens up another channel by which asset purchases can provide stimulus—by narrowing the spread between agency MBS and Treasuries, the Federal Reserve can drive down long-term mortgage rates and provide support to the housing sector and to home prices.