seems reasonably clear that effective management of these problems will, at least for the foreseeable future, require regulatory coordination and supervisory cooperation before a large firm ’ s failure becomes a real possibility. in one sense, this observation reinforces the importance of the international agenda for strengthening capital and liquidity standards. it also counsels continued attention to efforts to ensure that globally active institutions are subject to effective consolidated supervision, and that information - sharing arrangements among home and host country supervisors are well designed and implemented. to this end, the key supervisors and central banks for each of the largest global banks will begin to meet regularly to discuss crisis planning, with particular attention to contingency liquidity planning. see basel committee on banking supervision, cross - border bank resolution group ( 2009 ), report and recommendations of the cross - border bank resolution group ( basel, switzerland : basel committee, september ) ; and financial stability forum ( 2009 ), fsf principles for cross - border cooperation on crisis management ( basel, switzerland : fsf, april ). ( the financial stability forum subsequently was renamed the financial stability board. ) the basel committee ’ s cross - border resolution group released its report and recommendations today, and the fsb will present a final report and recommendations to the g - 20 in october. the crisis demonstrated that issues around cross - border liquidity support are difficult. liquidity pressures may arise in unexpected places, time for coordination will be short, and failures in one jurisdiction likely will spread quickly to other jurisdictions. the basel committee and the committee of european banking supervisors are each working on definitions of liquid assets, common stress - testing metrics, and structural balance sheet measures. we are actively discussing the appropriate division of responsibility between home and host authorities to provide liquidity support and the related issue of how to approach cross - border branch operations. some have called into question the traditional assumption that home country authorities will be willing and able to support all of the worldwide operations of a banking group headquartered in its jurisdiction. it is not clear what approach might work better, but there is an obvious need for broad international consistency and careful calibration with other prudential requirements. one of the key issues identified by the basel committee ’ s cross - border bank resolution group is the complexity and interconnectedness of the largest organizations. often the complexity is motivated by tax or regulatory factors, rather than a clear business purpose. given the way these firms are structured and their linkages to key systems and other institutions, resolution of such an

term is not significant. are foreign output gaps playing a more prominent role in the domestic inflation process, so that domestic monetary policy has more difficulty stabilizing inflation? as economies have become more open, foreign factors may have become more important in the determination of domestic inflation. research at the bank for international settlements ( borio and filardo, 2007 ) seems to provide evidence that foreign resource slack has superseded domestic slack as a key determinant of domestic inflation. however, research at the federal reserve board ( ihrig and others, 2007 ) and at the oecd ( pain, koske, and sollie, 2006 ) point out that the specification of the phillips curve in borio and filardo ( 2007 ) is problematic. their key findings are not robust to alternative specifications. moreover, their specification leads to econometric difficulties because it causes serial correlation of the residuals that is not corrected for. using more - conventional specifications of phillips curves, the research at the federal reserve board ( ihrig and others, 2007 ) and the oecd ( pain, koske, and sollie, 2006 ), as well as ball ( 2006 ), finds that foreign output gaps are not important determinants of domestic inflation. however, foreign factors could more plausibly play a role in the inflation process through import prices. as economies become more open and imports play a bigger role in the economy, consumer prices may become more sensitive to import prices. indeed, cpi inflation does appear to have become more sensitive to import prices over time, both in the united states and in other oecd countries ( pain, koske, and sollie, 2006 ). 3 can domestic monetary policy still control domestic interest rates and so stabilize both inflation and output? in principle, the increasing global integration of financial markets, by reducing the scope for individual central banks to control domestic interest rates, could hamper the ability of monetary policy to stabilize prices and economic activity. indeed, some evidence appears to suggest that foreign factors influence interest rates ; for example, the global saving glut does seem to have led to somewhat lower long - term interest rates by reducing term premiums ( warnock and warnock, 2006 ). more generally, research points to important linkages between u. s. and foreign interest rates and other asset prices ( ehrmann, fratzscher and rigobon, 2005 ; faust and others, 2007 ). however, central banks still retain the ability