of emerging markets. as the old saying goes, the only constant is change. but the speed of that change is not constant. the pace of change tends to pick up around major transitions before settling down again when some sort of equilibrium is reached. the great moderation was a period of relatively steady change during which world output grew steadily and inflation was low and stable. the global financial crisis created a major upheaval that led to the great recession. the subsequent recovery has been remarkably drawn out and almost 10 years on, you could say that we have been living through a great transition. i would like to highlight three pivotal transitional forces that have shaped our economic and political landscape. first, after decades of rapid expansion, world trade has slowed down considerably. during 2012 to 2015, world trade volumes grew at around 3 percent per annum, much less than the pre - crisis average of 7 percent for 1987 - 2007. cyclical factors have certainly been at work, but the slower pace of growth relative to world gdp points to deeper structural forces at work. chief among these is the waning impact from the integration of china and central and eastern european countries into the world economy, as well as the diminished room for further international fragmentation of production through global - value - chain trades. more speculatively, rising protectionism may have also dampened trade in recent years. nevertheless, the level of trade integration across the world is as high as it has ever been. second, economies the world over have seen a rising contribution of the service sector to growth. a key driver of this transformation has been technological innovation, especially in digital communication. for the world as a whole, the share of services as a proportion of gdp is now as high as 70 percent. this shift has not been confined to advanced economies but can also be seen in emerging markets. in china, for example, the service sector has grown to more than half of gdp in 2015, much of it driven by a surge in e - commerce and the expansion in logistical services required to support it. moreover, as the cost of digital technology declines, a wider range of services are becoming more tradable including design, marketing, business processes, and education. thus not only has the service sector become more important within a country, the share of international trade in services has also increased markedly. the third, and perhaps most unsettling transitional force, is the ultra - accommodative monetary policy stance adopted by major advanced economies. what started out as extraordinary

approach would inevitably lead to doing too little too late, as the cumulative impact of policy over the whole financial cycle is ignored. just as the proliferation of inflation targeting frameworks starting in the 1990s helped to bring down the level and volatility of inflation rates worldwide, a general trend towards a more systematic leaning against the financial cycle approach to monetary policy, especially among advanced economies, could yield significant benefits. i believe that if central banks coordinate on such a framework, and thereby adopt a longer through - the - cycle perspective in policymaking, the problems from cross - border spillovers and perceptions of competitive devaluations will be significantly diminished. the key challenge will be one of communication. as is well known, the long lags of policy creates a need for central banks to “ take the punch bowl away when the party gets going ”. given the longer duration of financial cycles, the need to act well before the risks become obvious may mean that central banks will have to “ take the punch bowl away even before the party gets started ”. but that is a political economy challenge that needs to be resolved and managed through careful redesign of central bank mandates. heed must be paid also to institutional arrangements, especially for central banks where the financial supervision authority lies with another body as coordination will be harder. this will take time. but the risks to financial stability is immediate. in the interim, central banks may need to interpret their mandates more flexibly and avoid overly narrow and zealous interpretations of price stability. inflation targets need to be implemented flexibly and over longer horizons. all the while explaining clearly and consistently the logic of policy. in doing so, it should be stressed that fundamentally, macroeconomic and financial stability are two sides of the same coin. macroeconomic trajectories cannot be sustainable if the financial sphere is out of equilibrium. and the avoidance of financial boom - bust cycles leads to better economic outcomes over the long run. the perceived trade - off between growth, inflation, and financial stability, therefore, is to a large extent an artifact of the short horizon focus of policy. ladies and gentlemen, the history of economic thought in the twentieth century has seen macroeconomics evolve through a series of intellectual transformations from the keynesian revolution to monetarism, and finally to the new classical or rational expectations paradigm. likewise, monetary policy has shifted through successive frameworks. from the system of fixed exchange rates under bretton woods, to monetary targeting during the great inflation in the 1970s, to