challenges that might lie before us as a result of the changed global environment under which monetary policy must operate. before going any further, i think two disclaimers are in order. first, i will not purport to be exhaustive but selective in my discussion of the factors conditioning monetary policy frameworks in the global environment. second, i do not intend to be taxative but reflective, as the assessment of monetary policy frameworks will necessarily continue even if the aftermath of the crisis. 1. the road to virtue the road to virtue between globalisation and monetary policy was built on two inter - related premises. first, that the process of globalisation itself was largely irreversible. and second, that the by - products of such a process complemented improvements in monetary policymaking such that the battles of yesteryear had been decisively won in a durable manner and the new challenges appeared to be manageable. the relationship between monetary policy and globalisation could thus be best described as one which was both symbiotic in nature and mutually beneficial. i will review these arguments in turn. bis central bankers ’ speeches the perceived inevitability of globalisation first, asserting the irreversibility of globalisation in the midst of a systemic crisis such as the one we are currently experiencing may seem far - fetched. however, if one were to look back at the enthusiasm which prevailed in both the economics and international relations fields during the early 1990s, this appeared as an inescapable conclusion. the growth of world merchandise export volumes had already consistently outpaced that of real gdp for decades1, while the world stock of outward fdi had dramatically increased in the period from 1980 - 19902. these favourable trends looked set to receive a further boost on account of the expected integration of central and eastern european economies as well as the states of the former soviet union and china into the mainstream of the world economy. many observers therefore agreed with francis fukuyama that this marked “ the end of history ” 3. the intensified scope and depth of economic and financial exchanges in the global economy which followed seemed to confirm this premise. but “ globalisation ” as a concept was – and remains – elusive to define even within the narrower remit of economics and finance, such that observers interpreted these developments in a slightly different manner. on the one hand, theorists such as ohmae ( 1990 ) 4 tended to focus on the globalisation of production and the shifts in global finance that under

##pinned this trend to argue that a new capitalist system would progressively emerge, with the relevance of nation states as economic actors dwindling in importance. in contrast, other observers saw the growing internationalisation of the world economy as part of a broader and longer - dated trend where sharp intensifications in trade and financial exchanges underpinned by growing economic liberalism were not without historical precedent ( for example during the period ranging from 1870 to 1913 ) 5. these observers were thus more bullish as regards the ability of nation states to retain their economic power going forward, consolidating this inter alia through strategic alliances in economic blocks6. in spite of these nuances, the common thread between the two views was that the underlying economic forces were seen as inevitable in the international ( or global ) domain. complementarities between globalised economic performance and policymaking second, following the broad acceptance of the premise that the globalised world would be durable in nature, academics and policymakers devoted their attention to fleshing out the practical implications of globalisation in different policy environments. insofar as monetary policy was concerned, the debate was broadly captured by the relative weight of improved policymaking versus globalised factors in accounting for successful economic outcomes. a first dimension in this regard was backward looking in nature and stemmed from the sharp reduction in the variability of both inflation and output during the 1990s. this phenomenon, which became known as “ the great moderation ”, coincided with both the intensification of according to wto data, the average growth of world merchandise export volumes per annum was 15 % from 1960 to 1990 inclusive, as compared to average real gdp growth per annum of 8 % over the same period. according to unctad data, the world stock of outward fdi increased from usd 564 billion in 1980 to usd 1763 billion in 1990. see the end of history and the last man, book by f. fukuyama ( 1992 ). see the borderless world ( 1990 ) and the end of the nation - state ( 1995 ), books by k. ohmae see for example globalisation, history and development : a tale of two centuries, article by d. nayyar ( 2006 ). the author notes that export shares in gdp for selected industrialised countries ( e. g. uk, germany, japan ) were broadly comparable in 2000 relative to 1913, and that the relative increase in export shares to gdp for these same countries between the periods 1900 – 1913 and 1973 –