the financial crisis, is worth noting. 1 these two professors looked back at the episodes of serious financial crises in 14 countries after world war ii, including the experience of the japanese bubble, the nordic banking crisis, and the asian currency crisis. they showed that per capita real gdp had declined from its peak to the bottom in almost two years. furthermore, they showed that it had taken 4. 4 years on average to recover the pre - crisis level of economic activity. taking into account these past episodes and ongoing events – namely, the large bubbles burst in the united states and europe – and given that it takes time to establish a new growth model in economies including japan and emerging countries, it is important to realize that the situation of subdued growth in the global economy is going to last for some time. under such circumstances where the subdued growth is less than satisfactory according to the previous criteria, excessive policy measures intended to engender higher growth may end up failing to achieve such policy goals, and we may be left with a number of distortions. the common challenge facing each country after the lehman shock is to make the utmost efforts to achieve sustainable growth by conducting macro - policies subject to the structure of each economy at the time, and to proceed with economic and fiscal reforms in each country and region in order to raise economic growth in the medium to long term. on this front, the challenge differs from one country to the next. emerging economies should aim to achieve balanced growth by cultivating domestic demand, which has the potential to grow while relying less on overseas demand. moreover, while the speed of aging may differ, japan, advanced economies, and some emerging countries in asia face the challenge of addressing their aging populations. lastly, innovation in the area of natural resources and energy is a challenge that needs to be tackled through the collective wisdom of all human beings in order for the global economy to achieve sustainable growth. european debt problem and its challenges the key to understanding the current state of the global economy is the adjustment after the bursting of bubbles. let me now describe the european debt problem, which goes well beyond the post - bubble adjustment. since the introduction of a single currency – the euro – in 1999, some countries were able to raise funds at lower rates than those justified by their economic strength, and this led to rapid accumulation of external debts. in those countries, wages have risen at a faster pace than productivity growth, and consequently the competitiveness of industries has declined. nonetheless, as a result of the euro area

is a measurement problem. in addition to the gdp gap, there is uncertainty over the measurement of the relevant parameters. there are two critical parameters for minimizing future loss ; namely, the relative weight in the loss function and the sensitivity of price changes to changes in the gdp gap. the ratio of these parameters is equal to the marginal rate of transformation between the two objectives ( inflation rate and the gdp gap ) for instance, we could mention the entrance of the department store through which husband and wife passed. or there may be several " lost and found " offices. then the power to bring expectations into convergence weakens. if some market participants perceive that the desired inflation rate set by the boj is the lower limit of the price stability range, namely 0 %, while others regards the upper limit as the desired one, then the signal to stabilize expectations may be muted. svensson ( 2006 ), commenting on morris and shin's paper, argued that the provision of public information diminishes welfare only if the precision of public information is eight times lower than the private information, or the amount of noise is more than eight times the amount of noise in the private information. otherwise, more transparency increases the welfare. habermas ( 1992 ) argued that the validity of the political decision - making process can be secured by democratic discourse under circumstances facilitating " undistorted communication " among voters. on the policy possibility frontier. the value of the former parameter is determined by voting, while the value of the latter parameter can be gauged from the instantaneous sacrifice ratio, by which i mean the inverse of the slope of the aggregate supply function in the macroeconomic analysis. one of the problems is the fact that the slope of the aggregate supply curve can change, partly reflecting the effect of globalization, as shown in figure 1 5. an alternative way to derive the ratio is to estimate the elasticity of demand faced by monopolistically competitive producers, as pointed out by woodford ( 2007 ) 6. yet the values obtained from the two approaches, macro - and micro - economic analysis, can differ widely. given the limited knowledge about the key parameters and the uncertainty of measurement, i would hesitate to preannounce the path of future policy rates, although i do not deny the usefulness of examining the intertemporal consistency and the robustness of policy decisions by employing different parameters. 15. finally, communication can be made through action. the power of action can be stronger than words in per