monetary policy by the us fed, and subsequent unrelenting appreciation of the us dollar. spillovers to emes, and to india, were in the form of capital outflows, depreciation pressures on currencies, reserve losses and imported inflation. synchronised tightening of monetary policy globally has progressively increased the risk of a hard landing, i. e., a recession to tame inflation. india is, however, differently placed. age old research issues for emes like external sector sustainability assessment, feasible range of policy options to preserve sustainability, and analysis of their effectiveness have once again come to the forefront, more so because the nature and size of the spillover risk is very different now. 10. while i have presented some of the major policy challenges for us in the recent years, let me also talk about how the research department of the rbi has responded to these challenges. in the usual academic environment of a university or a research institute, it is much easier to assess the impact of research done by the staff by aggregating data on published research output, downloads, citations, and impact factor to give authors and organisations a score. in contrast, it is always hard to track in quantifiable terms the utility and impact of policy research undertaken in central banks, a major part of which is used internally and not published. i take this opportunity to place on record my appreciation of the excellent work done by the depr in these turbulent times. your research inputs have been very valuable in shaping several of our policies and actions. ii. contributions of depr and its role as a think - tank 11. for a full - service central bank like the rbi, its research function is all encompassing. accordingly, the research department has a structure to be able to meet both the immediate as well as the strategic and policy research requirements. it has trained researchers, who not only specialise in specific areas, but also respond to the challenge of working on any issue of immediate relevance. teamwork helps in pooling the comparative advantage of each, and a robust internal peer review process ensures reliability and quality of research inputs before their use in policy formulation. 12. as noted earlier, standard models, information collection systems and analytical frameworks used before covid - 19 became inadequate to deal with the complex dynamics associated with multiple shocks that hit the economy. forecasting macroeconomic outcomes – crucial for conducting forward - looking monetary policy because of the usual lags in transmission – required a revamped

##sibility, dishonesty and outright fraud as part of the mix. globally, there were certainly elements of bubble - like behaviour in the few years leading up to the gfc. but we can also pose the question of whether the world financial system overexpanded on a longer timescale, maybe a quarter - century scale, in reacting to the various forces that i ’ ve been describing. did the financial sector in aggregate become too big relative to the size of the real economy? and if so, does that mean we are in for a period of ongoing correction to restore the balance? it is hard to be definitive about these things, but a few observations seem relevant : • first of all, it seems clear that at least some parts of the world financial system did overexpand by a significant margin. to cite some extreme cases, the total assets of the irish banking system peaked in 2009 at a ratio of 9 times that country ’ s annual gdp, a figure way outside its own ( and other countries ’ ) historical experience. iceland ’ s ratio peaked at 7 times. in the uk, the peak was around 5, and in france 4. all of these numbers are high by the standards of longer - run experience ( graph 3 ). this is a point that the bank has been making for some time. see rba ( 2003 ), “ household debt : what the data show ”, rba bulletin, march, pp 1 – 11 and ellis l ( 2005 ), “ disinflation and the dynamics of mortgage debt ”, bis papers no 22, pp 5 – 20, available at < http : / / www. bis. org / publ / bppdf / bispap22b. pdf >. bis central bankers ’ speeches graph 3 • behaviour in the post - crisis period in most economies is consistent with a period of private sector financial consolidation. ratios of credit or banking assets to gdp have tended to stabilise or decline, particularly in the countries where they had previously been highest. • the combination of regulatory and private sector responses around the world seems likely to result in reduced financial risk - taking in the foreseeable future. regulators are taking much - needed action to ensure that risks are better managed, and the appetite for financial risk in the household and business sectors now is clearly much less than it was. • in australia the banking sector did expand relative to the economy, but it remains significantly smaller than many others. on the rough metric