, to ensure that obstfeld - rogoff findings hold even in a world of integrated financial markets, we must ensure that capital markets are indeed effective in delivering risksharing. thus, the less we believe in formal coordination, the more we should strive to make international capital markets work. and this is a collective duty : central bankers should not leave this agenda to regulators and lawmakers, let alone to market participants, because it is crucial for the effectiveness of our monetary policies. in the same vein, those of us who also are bank supervisors should endeavour to recognise and overcome possible conflicts of interest. there is a temptation to ring - fence our domestic financial systems under our domestic financial stability mandates. but the more we ringfence, the more we limit financial risk - sharing channels, and the less efficient our monetary policies ultimately become. there are many other fields in which central banks can fruitfully cooperate. we can work together to improve the understanding of spillovers and shocks. we can prepare the instruments which will allow us to act together in times of crisis, such as foreign currency swaps. and we should all strive to design transparent policy frameworks and clearly communicate our reaction functions. thus, scepticism about formal coordination should not extend to pessimism about cooperation. going forward, a practical challenge i see is that the crisis has sizeably broadened the set of standard and non - standard monetary policy instruments, making the universe of central banking more complex than before. there will thus be a premium on clear communication, especially given the expected divergent monetary policy cycles across the atlantic. in my view stanley fischer ’ s recent speech on “ the federal reserve and the global economy ”, which discusses the global implications associated with the normalisation of fed policies, provides a very good example of how this can be done. bis central bankers ’ speeches the euro area aspects of the policy mix if we move from cooperation at the global level to cooperation ( or the policy mix ) within the euro area, the arguments about formal coordination change. this is not so much a question of monetary policy coordination, as a question of the coordination of other policies to be consistent with monetary policy : the maastricht treaty enshrines the principle of monetary dominance. indeed, price stability in the region as a whole is the single most important coordination device for other economic policies, reaching out into various policy domains across the member states of the euro area. despite this potentially wide remit for coordination, debates on

and hence future government income, they can help regenerate fiscal space. by making financial markets function better, they can improve the transmission of monetary policy. by reducing entry barriers and red tape, they can boost investment demand. and by reactivating and reskilling the workforce, they allow employment to respond faster to that higher demand. bis central bankers ’ speeches the composition of structural reforms this argument nonetheless comes with an important qualifier : the success of structural reforms depends critically on their composition. i am of course aware of the view that, in current circumstances, structural reforms that expand supply capacity could have contractionary short run effects. with monetary policy at zero lower bound, so the argument goes, conventional monetary policy is unable to counteract the resulting downward price pressures, leading to higher real interest rates and lower private consumption and investment. 2 some may argue that with inflation close to zero, the risks of any further fall in inflation are greater still. however, structural reforms can also be shown to have expansionary short run effects. by raising potential growth they can increase future income and wealth, leading firms to bring forward investment and households to bring forward consumption. 3 and structural reforms can also increase the profitability of investment by reducing fixed costs and, more generally, the cost of doing business, thus boosting investment demand and stimulating activity and inflation. 4 what matters for the short run effects is which set of forces dominates, and this is where the composition of reforms comes in. for example, a staggered or incomplete reform package that leads to a relatively slow price adjustment – e. g. if labour market reforms precede market reforms – will tend to reinforce disinflationary expectations and negative real interest rate effects. and these effects are likely to be worse if such a package is dominated by reforms that create more disinflationary pressures. changes in employment protection legislation, for instance, tend to have negative short - term impact on output even under normal monetary conditions. 5 on the other hand, if reforms are designed in a more comprehensive way, such that price adjustment occurs quickly, the positive impact on future income and investment is likely to materialise more quickly, thus in part offsetting any contractionary effects. moreover, several of the reforms that a comprehensive package would entail – such as improving the business environment – would have little disinflationary effects but a potentially strong impact on investment demand. indeed, this assessment seems to have been borne out by our experience during the crisis. several countries had