earlier speech, let me focus on the last two. 4 exit the macroeconomic argument for prolonged unconventional policy in industrial countries is that it has low costs, provided inflation stays quiescent. hence it is worth pursuing, even if the benefits are uncertain. a number of economists have, however, raised concerns about financial sector risks that may build with prolonged use of unconventional policy. 5 asset prices may not just revert to earlier levels on exit, but they may overshoot on the downside, and exit can cause significant collateral damage. one reason is that leverage may increase both in the financial sector and amongst borrowers as policy stays accommodative. 6 one channel seems to be that a boost to asset liquidity leads lenders to believe that asset sales will backstop loan recovery, leading them to increase loan to value ratios. when liquidity tightens, though, too many lenders rely on asset sales, causing asset prices and loan recovery to plummet. because lenders do not account for the effects of their lending on the “ fire sale ” price, and subsequently on lending by others, i was not a member of the fraternity at that time, so i do not feel a conflict in doling out praise! a step in the dark : unconventional monetary policy after the crisis ”, raghuram rajan, andrew crockett memorial lecture delivered at the bis on 23 june 2013. see borio ( 2014 ), borio and disyatat ( 2009 ), stein ( 2013 ), though see chodorow - reich ( 2014 ) for an alternative viewpoint. one question about chodorow - reich ’ s assessment that quantitative easing does not, by and large, prompt risk taking is that he uses market prices to estimate effects, even though these prices themselves could be distorted by risk taking. for evidence, see for example becker and ivashina ( 2013 ), bruno and shin ( 2014 a, b ), ioannidou, ongena and peydro ( 2009 ), maddaloni and peydro ( 2010 ). bis central bankers ’ speeches they may have an excessive incentive to build leverage. 7 these effects are exacerbated if, over time, lenders become reliant on asset sales for recovery, rather than on upfront project evaluation and due diligence. another possible channel is that banks themselves become more levered, or equivalently, acquire more illiquid balance sheets, if the central bank signals

pushed in by unconventional policy. once unconventional policies are in place, however, they do recognize the problems stemming from prolonged easy money, and thus the need for source countries to exit. but when source countries move to exit unconventional policies, some recipient countries are leveraged, imbalanced, and vulnerable to capital outflows. given that investment managers anticipate the consequences of the future policy path, even a measured pace of exit may cause severe market turbulence and collateral damage. 14 indeed, the more transparent and well - communicated the exit is, the more certain the foreign investment managers may be of changed conditions, and the more rapid their exit from risky positions. recipient countries are not being irrational when they protest both the initiation of unconventional policy as well as an exit whose pace is driven solely by conditions in the source country. having become more vulnerable because of leverage and crowding, recipient countries may call for an exit whose pace and timing is responsive, at least in part, to conditions they face. the case for international monetary policy coordination hence, my call is for more coordination in monetary policy because i think it would be an immense improvement over the current international non - system. international monetary policy coordination, of course, is unpopular among central bankers, and i therefore have to say why i reiterate the call and what i mean by it. i do not mean that central bankers sit around a table and make policy collectively, nor do i mean that they call each other regularly and coordinate actions. in its strong form, i propose that large country central banks, both in advanced countries and emerging markets, internalize more of the spillovers from their policies in their mandate, and are forced by new conventions on the “ rules of the game ” to avoid unconventional policies with large adverse spillovers and questionable domestic benefits. 15 given the difficulties of operationalizing the strong form, i suggest that, at the very least, central banks reinterpret their domestic see prasad ( 2014, p 198 ) and eichengreen and gupta ( 2013 ). see feroli et al. ( 2014 ). though see caruana ( 2012 ), eichengreen et al. ( 2011 ), jeanne ( 2014 ), and taylor ( 2013 ) for proposals by current and former policy makers and monetary economists. bis central bankers ’ speeches mandate to take into account other country reactions over time ( and not just the immediate feedback effects ), and thus become more sensitive to spillovers. this weak “ coordination ”