its present phase was triggered by political events and needs some global institutions and international political support to be sustained. if the collapse of central planning was the main trigger, then rapid advances in technology have been the main driving force behind globalization. in particular, the explosive development of information and communication technologies has played a central role. by reducing dramatically the cost of transporting and sharing information and services, it has made the world more interconnected and interdependent than any reasonable observer could have thought possible just 20 years ago. unprecedented economic benefits the economic benefits of globalization are clear and widespread. the ongoing global economic expansion is the longest in 30 years. the robust global growth is reducing the number of people living in extreme poverty. and, for the first time in decades, the average incomes of developing and developed countries are converging. forces of globalization have intensified competition and fostered rapid improvements in productivity ; these factors have exerted downward pressure on prices. financial globalization, in turn, has contributed to a broad - based decline in risk premia on various markets and asset classes, which has enabled much greater access to financing for households, firms and countries around the globe. on the whole, despite many structural changes brought about by globalization, the economic environment has become more stable and seemingly more predictable. we have witnessed what has been rightly coined " the great moderation ", a significant decline in variability of both output and inflation. a significant part of the credit has been attributed to improved monetary policies. institutional reform and thereby enhanced credibility of monetary policy has anchored inflation expectations, and this has been a major factor in ensuring the low level of long - term interest rates. so why the rising anxiety? despite these resoundingly positive effects, anxiety about globalization and uncertainty about its continued smooth progress is on the rise. one much - publicized source of concern is global current account imbalances and the risk of their abrupt and disorderly unwinding. moreover, two other “ imbalances ” seem to be emerging. first, uneven distribution of benefits of globalization, combined with increased feeling of job insecurity, is starting to erode also middle classes'support for globalization in some countries, notably in the united states. this disillusionment of the key segment of the electorate raises the specter of protectionism. second, there are indications that the narrowing of risk premia observed in many markets and asset categories may not be fully on a sustainable basis. this implies the possibility of an abrupt and broadbased

widening of risk premia. given the unprecedented degree of financial interdependence, the consequences might be serious. so, somewhat paradoxically, we are in a situation in which the baseline economic outlook remains benign, and many measurable risks remain low or are even receding, while uncertainty, i. e., those risks that cannot be readily quantified, timed, priced or hedged in the markets, may in fact be on the rise. 1 it is this apparent dichotomy and its implications that i will focus on in the rest of my remarks. i will first look at in more detail the various forces that have been driving down the risk premia. then i will discuss what implications and challenges the constellation of low risks and heightened uncertainty has for central banks. i will conclude by highlighting some broader policy implications. declining risk premia a broad - based compression of risk premia has been an important force in supporting global growth in recent years. much of this decline in price of risks seems to have reflected developments that are on a sound basis. • " the great moderation ", lower volatility of output and inflation, has played an important role in reducing risk premia, in particular inflation risk premium. central banks have clearly contributed to this by credibly anchoring inflation expectations. • whether reflecting a " savings glut " or " monetary overhang ", the ample global supply of funds – as reflected in the growth of monetary aggregates and their counterparties – has also contributed to lower long - term interest rates, as well as the compression of risk premia more generally. according to frank h. knight ’ s famous distinction, " risk " refers to situations where the decision - maker can assign mathematical probabilities to the randomness which he is faced with ( e. g., risk premia and volatility based on historical data ), while " uncertainty " refers to situations when this randomness cannot be expressed in terms of specific mathematical probabilities ( e. g., disruptive unwinding of global imbalances, possibly accompanied by unprecedented widening of risk premia ). to put it slightly differently, uncertainty is a type of ambiguity where the probability of an act or outcome cannot be calculated whereas a risk has some element of calculation - there is a certain probability of some known act or outcome occurring. • improved market liquidity, reflecting a host of different factors, such as development of market infrastructure, broadening of