the economy itself evolves slowly, which in turn leads policy to change slowly as well. to illustrate, suppose that the fomc did not adjust policy gradually but set the federal funds rate at each meeting precisely as needed to offset the effects of shocks to the economy. suppose also that shocks to the economy tend to die away slowly or that the economy ’ s adjustment mechanisms lead it to respond only gradually to disturbances. in this scenario, observed interest rates would appear to be adjusting slowly, but in reality the apparent gradualism would reflect only the slow adjustment of the underlying economy that the fed is trying to influence. to support his view, rudebusch has presented evidence that longer - term rates respond to changes in the funds rate less than they would if the fomc were intent on pursuing a gradualist approach. distinguishing “ true ” gradualist policies from policies that respond to gradual changes in the economic environment is difficult, as the two hypotheses imply similar behavior by policymakers. however, recent studies that have taken up rudebusch ’ s challenge have generally found that both an intrinsically gradualist approach to policy and gradual changes in the underlying economic environment are needed to explain the historical patterns of u. s. monetary policy ( english, nelson, and sack, 2003 ; gerlach - kristen, 2004 ). if correct, these more - recent studies confirm that gradualism is an accurate description of actual fed behavior as well as a normative prescription of economic theory. clearly, though, the extent to which the fed has pursued gradualism over its history remains an interesting question for further research. conclusion in my talk i discussed three sets of reasons for gradualist policies : policymaker uncertainty, improved control of long - term interest rates, and the reduction of financial stress. the debate about the sources of gradualism is ongoing and i cannot hope to render a definitive verdict today on the relative merits of these rationales. my sense, though, is that policymakers ’ caution in the face of many forms of uncertainty and their desire to make policy as predictable as possible both contribute to the gradualist behavior we seem to observe in practice. i will close by briefly discussing some implications of the gradualist approach for current monetary policy. before doing so, i remind you once again that the views i express are my responsibility alone. as you know, in reaction to gathering economic momentum and an apparent stabilization in inflation, the fomc at its may 4 meeting characterized the risks to both sustainable growth and

trade in or movement of goods across the national boundaries, two types of barriers generally are described viz., natural barriers and artificial barriers. of late, while the multilateral trade agreements are encouraging reduction in such artificial barriers, the developments in technology are also making it difficult for national authorities to enforce artificial barriers. the pace and nature of globalization will naturally depend on the combined effect of technology and the public policy, both at the national and the international level. the third dimension relates to capital movements for which also, the interplay between technology and the public policy becomes relevant. there have been, however, some special characteristics of capital flows in recent years mainly led by revolutionary changes in telecom and computing capabilities. these have highlighted the phenomenon of what is described as “ contagion ”, which implies the risk of a country being affected by the developments totally outside of its policy ambit, though domestic policy may, to some extent, influence the degree of its vulnerability to the contagion. in any case, cross - border flows of capital have wider macroeconomic implications, particularly in terms of the exchange rate that directly affects the costs of movement of people as well as goods and services and, also in terms of the conduct of monetary policy and the efficiency as well as stability of the financial system. capital flows, by definition, generate further liabilities or assets and could involve inter - generational equity issues. in this regard, it is useful to distinguish the extent of globalisation in respect of three different types of economic entities viz., individuals or households, corporate entities and financial intermediaries. it has been noticed that financial intermediaries impinge on the contagion effects impacting financial stability in the developing countries. experience in asia and latin america has shown that the external liabilities of the private sector tend to devolve on national governments in the event of crises and hence, there is a role for the public policy in trying to prevent crises and creating capacities to meet crises, if and when they arise. in managing the process of economic integration that is driven by several forces, developing countries face challenges from a world order that is particularly burdensome on them. yet, it is necessary for the public policy to manage the process with a view to maximizing the benefits to its citizens while minimizing the risks ; but the path of optimal integration is highly country - specific and contextual. on balance, there appears to be a greater advantage in achieving a well - managed and appropriate integration into the global