in emerging asia contributes to flush the us financial markets with liquidity, making the exit more complicated, once it gets under way. to sum up, an untimely exit by the countries that are ahead in the cyclical upturn creates distortions and encourages other countries to delay their exit, thus further adding to the imbalances and making the exit more difficult for everybody. why is this happening? there might be three reasons. the first reason is philosophical. and i would formulate it as a question : why should emerging asian countries abide by principles different from those which some advanced economies and international institutions are advocating? i have in mind in particular the first principle established by the imf in the g20 exit strategy document i mentioned previously. i quote it : “ the timing of exit from stimulus should depend on the state of the economy and the financial system, and should err on the side of further supporting demand and financial repair. ” in other words, why should emerging asian countries exit in a timely way when international institutions, and some advanced economies, are generally advising to “ err on the side of being late ”? in my view, the “ err on the side of being late ” paradigm is potentially as dangerous as the “ productivity growth ” paradigm of the late 1990s and the “ fear of deflation ” paradigm of the early 2000s, which led some advanced economies to implement policy stimuli for too long, sowing the seeds of the subsequent crisis. not enough effort has been put into assessing all the risks of the too - early and too - late errors that policy - makers can make in implementing the exit strategy. analysts are often inclined to believe that the costs of exiting too early are pretty obvious, while those of exiting too late are unclear and can be attenuated over time. as a result, the costs of a premature exit are regarded as being much higher than those of a tardy exit. this leads to the asymmetric recommendation of erring on the side of being late. the historical examples chosen to illustrate the two risks tend to be analysed in a rather simplistic way, in particular concerning a premature exit, which is generally deemed to be the most dramatic. in fact, it is not so easy to find cases of too early exits. for instance, the monetary and fiscal policy tightening which took place in japan in 1997 has been considered by some as a case of premature exit, responsible for the japanese recession of 1998 - 99. however,

rather than from the non - standard measures implemented in particular by central banks. the world ’ s leading economies have recently been called upon to cooperate in, or even coordinate, the design and implementation of their exit strategies. in particular, at the recent g20 meetings in st. andrews, the imf defined seven principles for the exit strategy, the last one being about international policy spillovers and cross - border collaboration. it reads as follows : “ making exit policies credible and consistent, together with communication and consideration of spillovers, will improve outcomes for all countries. coordination does not necessarily imply synchronization, but lack of policy coordination could create adverse spillovers. ” and moreover : “ spillovers from differences in monetary policy conditions could pose significant challenges. interest rate differentials are already generating capital flows into economies with higher see, for instance, jean - claude trichet, “ the ecb ’ s exit strategy ”, frankfurt, 4 september 2009 ; jose manuel gonzalez - paramo, “ non - standard monetary policy : five questions about the exit ”, london, 6 november 2009 ; jurgen stark, “ monetary policy before, during and after the crisis ”, tubingen, 9 november 2009. “ an ocean apart? comparing transatlantic responses to the financial crisis ”, rome, banca d ’ italia, 10 - 11 september 2009. yields. such inflows complicate monetary policy management, requiring difficult choices for authorities ”. indeed, not all countries are at the same stage of the cycle – some are already well on the way to recovery, while others are at a very early stage, experiencing more fragile growth. let me consider, for simplicity ’ s sake, three main areas or countries : emerging asia, latin america and the us respectively. you could include other countries and regions, such as the euro area, for instance, but it would only complicate matters and not add much to the analysis. in respect of returning to economic growth, emerging asia and latin america seem to be ahead of the us, whose growth is still fragile. so, logic would suggest that emerging asia exits first from the extraordinary post - crisis measures, then latin america and finally the us. this “ optimal ” sequence would mean that emerging asia tightens its policies as the economy gets back on track, thus avoiding domestic overheating and financial instability. the exit would be accompanied by an appreciation of asian currencies, and that in turn would favour a rebalancing of growth towards domestic demand