his assessment that these tensions “ are a symptom of change, not of immobility ”. 9 the lisbon agenda has been crucial for raising europe ’ s attention to the necessity for further structural reforms. countries now have to implement well - designed policies that remedy the root causes of their particular problems in labour, product and financial markets. these structural reforms will improve the environment, in which the stability - oriented monetary policy is conducted. in turn, this process of reform can best be implemented within a stable macroeconomic environment in which microeconomic policies can fully develop their welfare - enhancing effects. the single monetary policy will continue to play its part in this respect by maintaining price stability and by promoting financial stability. see for a further discussion of this topic issing o “ conditions for an orderly adjustment in the global economy ”, european integration, vol 26, no 1, pp 83 - 92. o blanchard ( 2004 ) : “ the economic future of europe ”, nber working paper, series no 10310.

of the financial system and the positive and negative cross - border externalities to domestic policy actions. most importantly, they found that sentiment and confidence were remarkably correlated across countries around the world. when the history of this crisis is written, the london g - 20 summit in april 2009 will be marked as a clear turning point, showing that in the age of globalization, a financial crisis cannot be managed without global cooperation and global response. 5. the question is, with the benefit of that hindsight, how are central banks going to manage the challenges from globalization to their macroeconomic policies. experience shows that external developments interact with domestic macro variables in complex, uncertain and even capricious ways, and central banks need to deepen their understanding of these interactions. some of the channels through which cross border transmission occurs are quite familiar – global prices including commodity price movements, synchronization of business cycles, capital flows, strong co - movement of asset prices, not necessarily correlated with the degree of a country ’ s financial integration, exchange rates of key international currencies and interest rate policies of major central banks. some of the transmission channels are not so familiar. for example, we now know that even differences in regulatory regimes can trigger arbitrage based action and dilute the efficiency of domestic policies. 6. is the challenge posed by globalization similar for all central banks? obviously, the more open the economy, the greater the impact of globalization on domestic policies. beyond that, it seems logical to conjecture that the broader the mandate of a central bank, the larger the influence of globalization on the effectiveness of its policies. there is a view that open economies can retain strong control over the medium and long term inflation trends even in the face of globalization. this is a debatable proposition, and at best true only in the case of pure inflation targeting central banks. central banks with wider mandates need necessarily to factor in external developments into their domestic policy calculus. 7. let me illustrate the challenge of globalization with the issue of managing capital flows. emerging market economies ( emes ) saw “ sudden stop ” capital outflows during the crisis as a result of global deleveraging. now the trend has reversed once again and many emes are seeing net inflows – a consequence of a global system awash with liquidity, the assurance of a low interest rate regime in advanced countries over an “ extended period ” and the promise of growth in emes. 8. one little known aspect of capital flows,