the keynesian multiplier story might explain why government bond yields in the southern periphery remain elevated despite the significantly improved market liquidity seen in recent months. if fiscal tightening alone cannot solve the problem, one may turn to the possible role of monetary policy. and despite the arguments to the contrary, i agree that the unconventional and extraordinary monetary policies adopted on both sides of the atlantic have certainly been pivotal in calming the markets and preventing even worse sovereign debt dynamics – bis central bankers ’ speeches at least up until now. and even more importantly, that monetary policy has bought us time for necessary fiscal adjustment and financial restructuring. but the welcome role of these policies in crisis management is now rapidly approaching its limit. as chairman bernanke has put it, monetary policy is not a panacea, and further monetary easing could do more harm than good when the financial markets are already flooded with cheap liquidity but remain nonetheless timid in their lending to the private sector. financial repression – a dosage of low nominal interest rates combined with moderate inflation – was the key driver of the post - war debt reduction in ames ( reinhart and sbrancia, 2011 ). but its relevance for the world of today should be discounted, given the current high cross - border mobility of capital and the relatively short average maturity of the sovereign debt of ames, at 5 to 6 years. a final, but not less significant, concern is that the continued availability of cheap money may also offer fertile ground for unhealthy speculation and moral hazard. moving on now, how about emerging market economies? what challenges do they face? emerging market economies – or emes in short – were largely innocent bystanders during the global crisis. and they weathered the crisis relatively well, based upon their strong fundamentals including their sound fiscal positions. they remain vulnerable to real and financial developments in ames, however, simply because of their close interconnectedness with ames – in both international trade and finance. more than 40 percent of eme exports go to the european and us markets, while 50 to 90 percent of their external funding is intermediated by european banks. given these linkages, the stagnant growth and financial retrenchment in ames have direct implications for emes. and the financial deleveraging by eurozone banks has indeed been a major source of uncertainty in the foreign exchange markets of emes in recent years. cross - border linkages are at work even on the policy front. the monetary policies of the ec

choongsoo kim : out of the great recession – an eme ’ s perspective speech by mr choongsoo kim, governor of the bank of korea, at the goethe university, frankfurt, 16 april 2012. * * * the author acknowledges the contributions by dr jun il kim and dr hyun jeong kim of the bank of korea economic research institute for the preparation of the presentation. the usual disclaimer also applies. guten abend, ladies and gentlemen. i am truly honored to speak here today at goethe university, a prestigious institution that has been home to 19 nobel laureates. i would like to extend my deepest gratitude to prof. siekmann for inviting me, and to prof. klump, prof. luise holscher, dr. raettig and consul general hahn for their welcoming and congratulatory remarks. i wish also to thank prof. gerlach, deputy governor of the central bank of ireland, for being with us today. the 2008 global financial crisis was a true test of our modern financial system ’ s resilience. but unfortunately the system failed this test, triggering severe dislocation of the world economy, both advanced and emerging. and in the early stage at least of the crisis, advanced market economies – or ames, as i will call them – contracted rapidly, at paces comparable to during the 1930s great depression. the lessons learned from the great depression, and from eighty years of macroeconomic research, were however not wasted. active and concerted policy efforts were deployed by major economies, with extraordinary monetary easing and fiscal stimulus undertaken together with financial bailouts. and thanks to these efforts the world economy was able to avoid another great depression, although not the great recession. major ames do appear to be pulling themselves out of the recession at present, but only at paces much slower than seen in the past. it is currently taking them four years or longer to return to their pre - crisis peak gdp levels, whereas in the past it took on average only one or two years. and ames ’ post - crisis recoveries appear even further from complete when viewed against the gdp levels implied by their long - term growth trends. the us economy is well behind its long - term trend growth, despite positive signs of recovery such as falling unemployment and improving consumer sentiment. and germany seems to be doing only slightly better. both countries ’ gdp levels remain far below where they would have been absent the global financial crisis. in this respect, we