institutional setups. there isn ’ t a one - size - fits - all sort of recipe for implementing a more responsible economic policy. in the paper, the role played by monetary, fiscal and wage policies seems to be rather underestimated. in my view, the contribution of better and sounder policies to explain the trend of domestic inflation in both industrial countries ( ics ) and emerging markets economies ( emes ) over the last 20 years has been crucial. the empirical literature has provided vast evidence, particularly for the united sates, that changes in policy objectives and management have been important to explain the decline of inflation since mid 80 ’ s. in developing countries, where fiscal imbalances were a main source of monetary instability and inflation, improvements in tax and expenditure policies contributed significantly to explain the decline of inflation since the early 90 ’ s. - bill also mentions that it is strange for inflation to remain so low given that monetary conditions seem to have been particularly lax for a rather long period of time. this is a true puzzle. however, considering the recent trend in certain variables related to the opportunity cost of keeping money, as well as the high global growth in the past years. we cannot rule out that, in real terms, the demand for money has genuinely increased. conclusive evidence to make this point is hard to find yet. further research on the subject should add some light on this issue. - white remarks the low cost of buying protection against corporate bankruptcies until the outbreak of the august crisis. he compares the cost as of mid july 2007 with the cost in the recessions of 1981 and 1991. however, the comparison is not totally valid because the depth and liquidity of the cds market in 2007 was enormously higher than in 1981 and 1991. - let me emphasize though, that financial integration should be given a larger role in the discussion between globalization and inflation. in particular, when assessing the effectiveness, credibility and commitment of monetary policy in emerging market to deal with inflation and inflation expectations. in my opinion, the depth of the financial system and its integration with capital markets has a powerful disciplinary effect on monetary policy as it reduces incentives to pursue expansionary policies as foreign capital would flow out to other markets with more predictable returns. also, financial development allows agents to substitute assets in local currency to protect themselves against inflation, restraining again the discretionary use of monetary policy. moreover, financial integration allows financing current accounts deficits, weakening the link between domestic output and demand. then, an

policy makers, should not pay any attention whatsoever to neutral values for real variables ( such as the output gap ). in my view we should look at output gap but do not consider them as the “ bible ”. - while pointing to evidence of a decline in the devaluation pass - through in emerging market economies, white writes that it is remarkable that inflation stayed so muted after the brazilian and argentine devaluations. regarding the latter episode, it must be emphasized that this was mainly due to massive unemployment before and during the crisis, after three and a half years of a continuous decline in output. the significant excess supply of labor was by far the main factor explaining the low pass through. yet, during the following 12 months, inflation exceeded 40 percent, mainly as a result of realignment in the relative prices of tradable goods. when unemployment began to be reabsorbed, inflation pressures resumed their upward trend. - a widespread hypothesis holds that lower headline inflation is due to lower imported prices or larger imports of cheaper goods, as a result of lower production costs arising from higher competition in the face of production factor globalization. however, this essentially microeconomic explanation of such an essentially macroeconomic phenomenon is suspicious. let me borrow a term coined by cecchetti, who calls this the “ accounting ” theory of inflation. the problem arise because prices affected by trade are “ relative ” prices. the import of a foreign product that is cheaper than the domestic one produces a change between this price and the other prices in the economy, while inflation is actually the aggregate change in general nominal prices. what is fallacious is to take these two notions the same way. this is better appreciated when taking into account that, by definition, when the relative price of a certain good falls, there should be a rise in the price of the other goods against which it is compared. - the authors points out as a “ puzzle ” that inflation should have dropped so dramatically in many countries with very different institutional arrangements, different monetary policy and, above all, different exchange rate regimes. in particular, he stresses that, during much of the period under review, many of these countries had fixed exchange rate regimes. 2 however, calling it a puzzle seems exaggerated. lower inflation in my opinion is the consequence of a more “ responsible ” management of fiscal, monetary and wages policies, which might be a result of a growing awareness of the costs of inflation. these policies can be put into effect by diverse means and through different