“ right ” regime that applies to all cases and all points in time. experience has shown that no currency arrangement can compensate indefinitely for imperfections elsewhere in an economy, such as weaknesses in financial supervision, an excessively loose fiscal stance or inflexible wages and prices. furthermore, no exchange rate regime can offer full insulation from cross - market spillovers, particularly where the free movement of capital is allowed. nevertheless, certain policy combinations can make things far more dangerous. fixed, but adjustable, regimes look to be particularly fraught with perils when combined with shortcomings elsewhere, not the least of which are the severe after - effects that always seem to follow their forced abandonment. official reserves can, at times, play a helpful role in the equilibrating process under either fixed or managed floating rates, but considerable caution is needed here. clearly, large - scale sterilized intervention has a poor track record as a crisis avoidance tool. to be sure, history is replete with examples of how quickly a once comfortable reserve cushion can dissipate when countries attempt to buy stability rather than earn it by adjusting policy. nonetheless, markets often seem to take comfort when authorities are perceived to step in with “ judicious ” market smoothing. here again, credibility is key in assuring market participants that the central bank ’ s focus is on preventing disorderly markets rather than on trying to manipulate market prices. as you are aware, much of the emerging world has moved toward floating rates in recent years. for those countries that have made the change in east asia, it would appear that the new monetary / exchange regimes, despite their very difficult starts under the most inauspicious of circumstances, now appear to be serving countries well. inflation is in the very low single - digit range in all of the newly floating economies, and in many instances the successful effort to bolster monetary credibility has been reflected in short - term interest rates that have declined to historically low levels. moreover, authorities have gained new degrees of freedom to manage their economies and to respond to changing internal and external circumstances. but if the promised benefits of monetary discretion are to be fully realized going forward, markets need to understand the objectives and the framework by which the monetary authorities will decide future policy actions. in this regard, i would note that some countries have looked to inflation targeting as a framework to accomplish that end. and indeed, inflation targeting would seem to have much to recommend it, provided that it is approached not as a pan

. some central banks, for example bank of norway and bank of sweden, go further and show projections of intended policy rates into the future with the aim of enhancing credibility and transparency of monetary policy. studies of forward guidance suggest that the practices do influence markets rates in the desired ways, though there are also cases – notably in sweden – where market rates do not seem to align well with the announced policy intentions. there is by now a fair amount of empirical experience with unconventional monetary policies and there are several studies of their impact on the economy. further studies are, however, warranted as unconventional policies are likely to stay in the tool kit of monetary policy and they may well be needed at times in the future. to this end i must note that the crisis is far from over and interest rates may stay at very low levels for several more years. this is so even if plans for exit from the low - rate regime are occasionally discussed. we must also recall the japanese experience. bank of japan has kept the interest rates very low and has at times engaged in unconventional policies during the past fifteen years or so. iii. remarks on exit from current stagnation i next want to make other remarks about the regime of effective lower bound for interest rates and of unconventional monetary policies. it is often suggested that the policies of central banks and governments have rescued western market economies from a far worse outcome than the great recession of 2008 – 9. fiscal policy accompanied the strong monetary policies. a second case of unprecedented monetary policy action has been the recent massive 3 - year liquidity provision by the ecb. the latter measure was designed to counter the freezing of credit markets in the euro area. in this latter case, there was no accompanying fiscal policy. looking at the current mix of policies, the general picture is that central banks in many advanced market economies continue to have policy interest rates near or at the effective see e. g. gertler and karadi ( 2012 ) and the references therein. bis central bankers ’ speeches lower bound and unconventional policy measures are applied occasionally if a recovery is at risk to falter. in contrast, fiscal stimulus is no longer applied or its scale has been reduced in most countries. this state of affairs has two consequences for the changing role of central banking. first, the mix of macroeconomic policies is placing the main responsibility to central banks for achieving more satisfactory macroeconomic developments. this situation and the use of unconventional policies are straining the conventional boundary between monetary and fiscal policy. large - scale