looking back on the modest scale of the damage and the remarkable effectiveness of the countermeasures adopted, the conclusion was drawn that the evolution of that crisis had confirmed both the advent of the great moderation and the merits of good policy. however, as already observed, there was much debate then, and there still is today, about whether monetary policy should not pay more attention to financial and real asset price trends and to the pro - cyclical growth of credit and leverage, and in some instances respond decisively to seemingly “ excessive ” movements. aside from the difficulty of defining what excessive means in practice, it is certainly useful to examine the factors that determine particularly large swings in these prices, just as it is necessary to shed light on the factors that tend to threaten financial stability and disproportionately amplify cyclical fluctuations. many of these factors probably originate not so much in behaviour as in rules and incentives existing in the markets. in the case, for example, of the mortgage loans that triggered the current crisis due to excessive borrowing, two factors surely played a crucial role : ( 1 ) the assumption that the continuous rise in house prices would lower the amount of debt in relation to the value of the underlying asset over time, and ( 2 ) the possibility of obtaining mortgages with loan - to - value ratios of 100 per cent and more. in these cases, and as has long been acknowledged ( for example, with reference to the sharp rise in house prices in the united kingdom recorded in the early 2000s ), it is obvious that it is necessary to resort not so much to monetary policy but to prudential instruments, with limits on the value of collateral that can be used in taking out a loan. the question is why steps of this kind were not taken, quite apart from the failure to use monetary policy ( naturally as a possible second - best instrument ). in the same way, it is legitimate to wonder whether confidence in the ability of financial markets to regulate themselves was not excessive. what role was played, in particular, by the waiving of stricter supervision in many sectors of financial intermediation? this, even disregarding the strength of lobbies and instances of excessive proximity between the supervisors and the supervised. in any event, it is clear that the consequences of a change of trend in the perception and concentration of risks were seriously underestimated, notwithstanding the many analyses and signals that had become available in recent years. excessive deregulation of the financial sphere

presupposes an agreed set of benchmarks and bis central bankers ’ speeches rules in all the relevant fields. individual economies should not only continue to “ keep their own house in order ” – which is probably at this point a still necessary, but insufficient condition. they must also be induced to take more fully into account the global effects of their own policies, whose mutual consistency needs to be ensured. to achieve this objective we need a decisive improvement in the governance of the international monetary system, addressing those problems that have hindered its proper functioning. the central issue is, in my view, the need for a more effective process of multilateral surveillance over national economic policies. some steps forward are being taken. the “ legitimacy deficit ” of international bodies has been at least in part addressed with the agreement on the imf quota reform at the seoul summit of november 2010 ; the very same leadership role taken by the g20 in international economic affairs is a recognition of the need to increase legitimacy and representation. the imf has been given more resources and more incisive monitoring power, for example by making fsaps compulsory for all systemically relevant members over a 5 - year cycle, and is enhancing its traditional machinery for surveillance ( bilateral and multilateral ). in parallel the g20 is proceeding with its own peer review process ( the framework for strong, sustainable, and balanced growth ) to identify objectives for the global economy and the policies needed to achieve them. the evaluation of the mutual consistency of such policies is the goal of the “ mutual assessment process ” ( map ). the map requires an assessment of the nature and the root causes of impediments to the adjustment of persistently large imbalances and indicative guidelines, composed of a range of indicators, to facilitate a timely identification of imbalances that require preventive and corrective action. this is an essential and, at the same time, a very demanding task. as agreed by the g20, there must be a shift to a more balanced global pattern of demand. some progress in this direction is being made, but important challenges remain. emerging market countries of systemic relevance ought to prioritize structural reforms and greater exchange rate flexibility to strengthen domestic demand ; further fiscal consolidation is necessary in advanced countries, based on growth - friendly measures ; finally, all g20 members should implement product and labour market reforms to boost their potential output. it is also to be welcomed that both the imf and the g20 under the french presidency have started