Also, the lessons of Friedman and Schwartz (1963) on monetary policy and the role of central banks as lenders of last resort, of Keynes (1935) on the role of expansionary policies, and of Bernanke (1983) on the role of the financial channel for the transmission of policy actions, have been essential in policy decisions adopted since the onset of the current crisis. Many subsequent studies have shed additional light on the characteristics of good policies and have provided the base for the aggressive monetary and fiscal policies that have been applied around the world, and should also illustrate the way in which the stimulus must be withdrawn. Finally, the use of the gold standard accounted largely for the depth of the Great Depression (Bernanke and James, 1991; Eichengreen, 1992). Moreover, in the midst of the crisis in 1931, the U.S. raised the interest rate to defend the dollar parity, aggravating the crisis and causing deflationary pressures. In Latin America, thanks to lessons learned from mistakes of the past, it has been understood that macroeconomic stability, in both monetary and fiscal terms, foreign exchange flexibility, and a well regulated financial system are crucial to mitigate the effects of external scenarios as adverse as this one. This reflects major progress in economic policy, which has benefited from important practical lessons and advances in research following the debt crisis. Final remarks There will be plenty of time to continue analyzing where was the profession such that it did not warn of the magnitude of the crisis.

While there are certainly grounds for limiting exchange rate fluctuations to prevent temporary misalignments, targeting exchange rates is likely to be counterproductive in the long-run. Doing so requires policymakers to choose a level of the exchange rate to stabilize around. This can be very difficult to implement in practice, not least because the target would change over time as fundamentals evolve. Importantly, there is little that monetary policy can do to influence real exchange rates in the long run. Past attempts to give the exchange rate more weight in monetary policy decisions tended to generate more interest rate volatility, with little lasting effect on the real exchange rate. Here, I should note that emerging markets are generally better placed than in past cycles to withstand capital flow volatility. Key areas where progress has been made include: more flexible exchange rates, clearer monetary policy frameworks, larger foreign reserve cushions, generally moderate external debt levels, improved fiscal discipline, and better capitalized banking systems, supported by stronger supervisory and regulatory frameworks. Moreover, the general shift away from debt-based finance towards equity and foreign direct investment, which together now account for two-thirds of emerging market financing, is significant from a stability perspective. Nevertheless, I want to stress that there is an enormous amount of heterogeneity among emerging market economies. The underlying strengths and weaknesses in terms of institutions and economic capabilities of Thailand and Brazil, for example, are very different. The destinies of emerging markets are not tightly bounded to each other like General Cao Cao’s battleships.