. of course, keeping one ’ s house in order and putting in place rulesbased policy frameworks are decisive contributions to the stability of the global economic system. however, given the rising degree of global integration, these efforts alone do not eliminate the potential for spillovers from one country to another, adversely affecting the stability of the global system. therefore, policy cooperation at the international level is vital to strengthen the ability of the global economic system to absorb shocks and hence to deliver the public good of global financial stability. a conditio sine qua non is that the various fora and institutions that form the international financial architecture are designed and constantly upgraded so that they are up to the task. this is an important and ongoing responsibility that policymakers from around the globe are faced with. living up to this responsibility will ensure that, going forward, global economic integration will lead to further global economic prosperity.

as “ quantitative easing ”, the moniker is somewhat misleading as it focuses attention on the associated reserve expansion, rather than the change in the portfolio composition of the central bank and private sector. but do they work? under ricardian equivalence the answer would be no, as the associated transfer of risks from private sector balance sheets onto the public sector ’ s is matched by offsetting movements in future taxes ( gauti eggertson and woodford, 2003 ). be that as it may, event studies by joe gagnon and others ( 2010 ) for the united states, and mike joyce and others ( 2010 ) for the united kingdom suggest that long - term bond rates in each jurisdiction fell by around 100 basis points as a result of the purchase programmes, though the ultimate impact on aggregate demand is harder to judge. from this i draw my fourth lesson : central banks do not run out of ammunition when policy rates reach their zero lower bound. despite that, as we have seen only too clearly, it is next to impossible to stabilise activity in the face of a financial crisis, as indebted households, businesses and intermediaries all seek to de - leverage simultaneously. moreover, the upswing of the credit cycle is frequently associated with an increase in lending to purchase assets, especially property ; that was certainly true on this occasion. if the consequence is an investment or construction boom – as was the case in the united states, ireland and spain – the result is a capital overhang that needs to be worked off. there are welfare gains from avoiding such capital misallocation. that leads naturally to my fifth lesson : prevention is better than cure. the marginal funding cost is the three - month libor plus the average of the five - year cds premia of the major banks. the corporate loan rate is the three - month libor plus the average of the spread on sub - investment grade syndicated loans. if no other policies were available, then one might be tempted to conclude that the inflation target should just be higher in normal times, as advocated by olivier blanchard, giovanni dell ’ ariccia and paolo mauro ( 2010 ). by ignoring the other policies that are available to deal with, and prevent, financial crises, to my mind this is giving up too easily. bis central bankers ’ speeches but how best to do that? could a different choice of monetary policies have led to a better outcome? ahead of the crisis, there was a robust debate on whether monetary policy should seek to moderate