. jorgen elmeskov indicated that debt beyond a threshold level can adversely affect growth. hence, debt reductions should be aimed by improving primary balance and raising productivity growth. parthasarathy shome suggested that the solution to the present economic crisis led by european sovereign debt crisis lies in austerity through stronger imf surveillance. summing up the proceedings of the session, dr. k. c. chakraborty, deputy governor, emphasized that more than quantum of debt, the purpose of debt, and the quality of assets created against the debt are important. benjamin friedman noted that with higher debt, if economic growth is adversely affected, inflation may be used to lower debt - gdp ratio as there is not much growth sacrifice at moderate levels of inflation. the third session was devoted to the financial stability issues. in this session, stephen g cecchetti indicated that when private credit to gdp ratio exceeds a threshold of 100 per cent, financial sector could be a drag on growth by reducing productivity growth. bill white felt that leaning against economic and financial excesses during boom makes more sense as cleaning up after the bust is impossible. the trilemma is less on the upswing, but magnifies in the downswing. y. c. park questioned the efficacy of macro - prudential tools in containing mortgage credit growth in korea. the capital control tools are largely towards containing capital inflows but there are no effective tools to control capital outflows. while summing up the third session, mr. anand sinha, deputy governor noted that the potential conflict between monetary policy and macro - prudential policies is overdone, and indicated that india offers an example that macro prudential policy has been less reactive and more preventive. naoyuki shinohara noted that the international architecture to deal with some of the challenges discussed is still not in place as yet, and the expectations should recognize that. in the panel discussions, governor gudmundsson highlighted the importance of clarity on domains and tools and the difficulty of maintaining financial stability with flexible exchange rate movements. bis central bankers ’ speeches governor khatiwada underscored the need to consolidate the role of different regulators to achieve policy effectiveness of multiple goals, particularly in developing economies. governor rehman indicated that, given the chain of inter - linkages among monetary policy, debt management and financial stability, it is not possible to have a meaningful separation and underscored the important role of government in

in addressing the trilemma. in the technical sessions, the first session on “ conducting monetary policy post - crisis : challenges to transmission mechanism and operating framework ” focused on whether the framework of monetary policy needs to be re - designed in the light of lessons drawn from the crisis. leading the discussion, professor benjamin friedman drew attention to the interplay between financial stability and responsive monetary policy. he suggested that one has to look into the three building blocks of macroeconomic and financial policy - set, in order to prevent the recurrence of crisis. the three elements of the policy - set are : one, monetary policy centered on an active use of short - term interest rates ; two, an intermediation system built on banks and other deposit - type institutions with significantly leveraged balance sheets and three, asset markets characterised with open entry and free trading. prof. friedman articulated that if these policy mix sow the seeds of the crisis, there is a need to change the policy mix. bis central bankers ’ speeches professor eswar prasad argued that central banks need not be constrained by the orthodox one instrument one target framework but need to explicitly address the financial stability concerns. he argued that under more realistic conditions of imperfect markets and credit constrained consumers, flexible headline inflation targeting could be the optimal monetary policy framework. in the indian context, mr. deepak mohanty provided evidence that policy rate increases have a negative effect on output growth with a lag of two quarters and a moderating impact on inflation with a lag of three quarters and the overall impact on inflation persists through 8 – 10 quarters. summarising the first session, mr. h r khan, deputy governor emphasized that the orthodoxy that central banks should restrict themselves just to setting interest rates and not regulate or supervise financial markets has come under question since the financial crisis. dr. subir gokarn, deputy governor highlighted three important messages from the session : one, monetary policy framework should not be locked into single target, two, more flexibility in defining objectives and instruments is necessary, three, boundary conditions for policy environment keep changing, but transmission within the boundary conditions is what a central bank could aim at. the second session was devoted to the theme, “ impact of crisis on sovereign debt : implications for macro - economy and inter - linkages with other policies ”. in this session, frank smets suggested that large scale asset purchase programs can lower long term interest rates. but there is a risk that the central bank could lose its hard earned credibility