been too important to waste, how we should learn the lessons of the crisis and apply them in a schumpeterian creative destruction mode. some people have, however, questioned the wisdom of drawing lessons even before the crisis is fully behind us. when zhou enlai, former chinese prime minister, was asked what he thought of the french revolution, he said it was too early to say. historians who take a long view may agree with zhou enlai but practical policy makers do not enjoy that luxury. so, let me use the opportunity of this platform to draw out eight big picture lessons of the crisis. lesson 1 : in a globalizing world, decoupling does not work the crisis challenged many of our beliefs, and among the casualties is the decoupling hypothesis. the decoupling hypothesis, which was intellectually fashionable before the crisis, held that even if advanced economies went into a downturn, emes would not be affected because of their improved macroeconomic management, robust external reserves and healthy banking sectors. yet the crisis affected all emes, admittedly to different extents, bringing into question the validity of the decoupling hypothesis. some analysts argue against such an outright dismissal of the decoupling hypothesis and suggest a more nuanced evaluation. recent imf research1 in fact illustrates that the transmission of distress from advanced economies to emes took place in three distinct phases. the first phase runs from the time early signs of the crisis appeared in mid - 2007 till the lehman collapse in september 2008. during this period, the growth performance of emes outshone that of advanced economies indicating decoupling. the second phase, starting with the lehman collapse till the first quarter of 2009 was one of “ recoupling ” when advanced economies pulled emes too into the downturn. the third phase started in the second quarter of 2009 when emes started recovering from the crisis ahead of advanced economies suggesting a shift once again to decoupling. so, have emes decoupled from the advanced economies? the answer has necessarily to be nuanced. a useful way to visualize decoupling in the wake of the crisis is to distinguish between “ trend ” and “ cycle ” decoupling. “ trend ” decoupling is reflected by the widening gap between the trend rates of growth of emes and of advanced economies. this is evidently owing to the growing weight of domestic factors, mainly consumption, in the emes ’ growth process. however, given that there

at any rate minimize the probability of, another crisis of the type we have gone through. differences of opinion, when the agenda is so broad, are not only to be expected, but may in fact have a positive influence in determining what is collectively optimal. the common thread running through the entire g - 20 agenda is the need for global cooperation in solving our most pressing problems of today. the crisis has taught us that no country can be an island and that economic and financial disruptions anywhere can cause ripples, if not waves, everywhere. the crisis also taught us that given the deepening integration of countries into the global economic and financial system, uncoordinated responses will lead to worse outcomes for everyone. the global problems we are facing today are complex and not amenable to easy solutions. many of them require significant and often painful adjustments at the national level. because short term national interests conflict with globally optimal solutions, it is quite understandable that there are differences of views within the g - 20. we must remember though that in a world divided by nation - states, there is no natural constituency for the global economy. at the same time, the global crisis has shown that the global economy as an entity is more important than ever and that global coordination to solve global problems is critical. lesson 4 : price stability and macroeconomic stability do not guarantee financial stability the years before the crisis were characterized by steady growth and low and stable inflation in advanced economies and rapid growth and development in emes. the so called “ great moderation ” prompted a growing consensus around the view that the best practice in monetary policy framework is the pursuit of a single target ( price stability ) by means of a single instrument ( short term policy interest rate ). the success of the great moderation bis central bankers ’ speeches fortified the argument that price stability is a necessary and ( a nearly ) sufficient condition for economic growth and for financial stability. central bankers believed they had discovered the holy grail. that sense of triumph was deflated by the unravelling of the crisis. as the global financial sector came to the brink of a collapse even in the midst of a period of extraordinary price stability, it became clear that price stability does not necessarily guarantee financial stability. indeed the experience of the crisis has prompted an even stronger assertion – that there is a trade off between price stability and financial stability, and that the more successful a central bank is with price stability, the more likely it is to imperil financial stability. the