##lateral actions were taken in order to tackle the crisis. for instance, the coordinated policy rate cuts at the beginning of october 2008, by the u. s. federal reserve, the european central bank, the bank of england, the bank of canada, the swiss national bank and sweden ’ s central bank. later, u. s. dollar liquidity facilities, which had been established by the u. s. federal reserve and other central banks of advanced economies, were expanded in order to include emerging economies, such as mexico, brazil, korea and singapore. in europe, injections of capital into the banking system in various countries were agreed upon, as well as the commitment to jointly confront the crisis. regarding fiscal policy, several advanced and emerging countries started to implement countercyclical programs to stimulate the economy and to foster a faster recovery, taking into account that a broad simultaneous stimulus would yield better results relative to unilateral increments in public spending. additionally, efforts were made to strengthen the international financial architecture in several international forums, aimed at designing a system which would allow a timely, efficient and coordinated response during global episodes of stress. these turbulent episodes showed that international coordination in implementing policies is more productive and efficient than unilateral implementation. this thesis is not only widely supported by academic literature, but also by recent and even current experience : in times of crisis the benefits of coordinated action are more than evident. a multilateral response has positive externalities and the costs of not acting in concert are much higher, such that the different parties have sufficient incentives to strengthen their cooperation. thus, the challenge is to design international arrangements, which facilitate greater cooperation among our countries. in this sense, the existence of international institutions and forums that contribute to the early identification of risks and signs of instability are of utmost importance. bis central bankers ’ speeches in latin america and the caribbean we should continue to strengthen the dialogue. the first point in order to understand the importance of this collaboration is the lack, the great deficiency, of a consistent theoretical framework to analyze the role that the financial sector has in economic activity and its function in the propagation of crises. despite all the progress made in order to model the contagion through trade, as concerns the financial channels, it seems as if we spoke different languages. there is no consistent framework that would provide us with a standard model to set up our discussions. there does not even exist, i need to point out, a common terminology. unfortunately, it is

. this diagnosis is obscured because symptoms, such as poor credit evaluation by rating agencies and massive securitization, are often mistaken for causes. in order to find causes, economics suggests searching for incentives. in this attempt, it is convenient to begin by verifying that no government policies induce excessive risk exposures. factors with possibly unintended consequences may include policies to maintain low interest rates for too long ; measures to promote borrowing under artificially favorable conditions, perhaps in the pursuit of social objectives such as home ownership ; and, government ’ s guarantees for bailing out private risk exposures. these policies have the potential of promoting moral hazard. in particular, when a market or infrastructure is capable of suffering difficulties that may lead to a disruption in the financial system, they are classified as “ important ”. one problem with this categorization is that the possible systemic importance of institutions varies in time ; an entity which is not considered systemic today may become one in the future. however, a deeper limitation of such classification is that it may exacerbate the risk taking of the agents involved, if they know in advance that, in case of difficulties, the government will protect them against losses. two factors currently stressed as important contributors to the emergence or aggravation of the recent financial crisis are global imbalances and sovereign risk. however, notwithstanding their importance, it is not clear if they can be considered root causes of the crisis. global imbalances come from the hypothesis that a “ saving glut ” during the years prior to 2007 caused interest rates to fall in the united states, thus promoting excessive risk taking on the part of economic agents. the existence of a “ saving glut ” has been debated. arguments against it include historically low saving rates during those years and a possible negative effect from expansionary monetary policy on the u. s. low saving rate. additionally, one must recognize the fact that open economies naturally exhibit current account imbalances as a reflection of investment opportunities and saving motives. 4 nevertheless, while their relevance is still under debate, somehow global imbalances have taken a prominent role in risk diagnosis, ranging from threats to the world economic growth to the eventual emergence of a financial crisis. consequently, the need for balancing current accounts in the world has gained ample acceptance. a potential dangerous outcome of this prescription is a movement toward protectionism and the implementation of a variety of distortive measures. some of this has been evidenced in the capital controls imposed by some