at the same time, too much fiscal tightening in the near term could harm the economic recovery. significant near - term reductions in federal spending or large increases in taxes would impose an additional drag on the economy at a time when aggregate demand is already weak. indeed, under current law, federal fiscal policy is slated to impose considerable restraint on the growth of aggregate demand next year. we need, and i believe we have scope for, an approach to fiscal policy that puts in place a well - timed and credible plan to bring deficits down to sustainable levels over the medium and long terms while also addressing the economy ’ s short - term needs. i do not underestimate the difficulty of crafting a strategy that appropriately balances short - run needs with long - run considerations, but doing so would provide important benefits to the u. s. economy. the key role of the emerging asian economies in light of the various factors weighing on aggregate demand in the united states and other advanced economies, i believe it is crucial for emerging market economies, particularly in asia, to take further steps to boost domestic demand, providing support for their own growth and that of the global economy. indeed, such policies are a core component of the g - 20 nations ’ commitment to strong, sustainable, and balanced growth. of course, emerging asia has already made an important contribution to bolstering the global economy in the wake of the financial crisis. the top panel of exhibit 3 shows that even though the emerging asian economies were hit quite hard by the global downturn, they recovered much more quickly than did other parts of the world. the full extent of the asian bounceback can perhaps best be appreciated by comparing the level of output in asia, shown in the bottom panel of the exhibit, with those in advanced economies and other emerging market economies. asia ’ s output level – the solid line – has increased substantially from its barely perceptible trough. output in other emerging market economies – the dashed line – has also increased bis central bankers ’ speeches significantly. in comparison, output in the advanced economies – the dotted line – has not yet attained its pre - crisis peak. a key factor contributing to the relatively rapid recovery of the asian emerging market economies was that, in contrast to many previous episodes of severe stress, these economies were well - positioned to permit the use of countercyclical fiscal and monetary policies. cyclically - adjusted fiscal balances in emerging asian economies fell noticeably in 2008 and 2009, reflecting a more expansionary fiscal

janet l yellen : aggregate demand and the global economic recovery speech by ms janet l yellen, vice chair of the board of governors of the federal reserve system, at the federal reserve bank of san francisco, san francisco, 29 november 2011. * * * good morning. i ’ m delighted to return “ home ” to the federal reserve bank of san francisco and honored to kick off the bank ’ s second asia economic policy conference. in my remarks this morning i will underscore the urgency of strengthened international policy cooperation to attain strong, sustainable and balanced growth in the global economy – a theme that received emphasis at the group of twenty ( g - 20 ) leaders ’ summit in cannes earlier this month. the global economy is facing critical challenges. the recovery in the united states and other advanced economies has been proceeding too slowly to provide jobs for millions of unemployed people. there have also been clear signs of slowing growth in emerging market economies over the past year. in effect, we face a dearth of aggregate demand, not just among the advanced economies, but also for the global economy as a whole. 1 in ordinary times, policymakers in the advanced countries would address such a demand shortfall with expansionary fiscal and monetary policies. but these are no ordinary times. central banks in a number of advanced economies, including the united states, have brought short - term interest rates close to zero, so that further monetary accommodation can be provided only through unconventional tools, such as securities purchases and forward policy guidance. meanwhile, the scope for fiscal stimulus is limited by concerns about sizable budget deficits and longer - term sustainability. at the g - 20 summit earlier this month in cannes, the united states and other advanced economies – including france, germany, italy, japan, spain, and the united kingdom – agreed to pursue fiscal consolidation plans to place public finances on a sustainable course over the medium term while sustaining the near - term recovery. indeed, in the current environment of weak demand, near - term fiscal consolidation could threaten the economic recovery, which in turn may undermine the success of the fiscal strategy. in such circumstances, economies with the capacity to stimulate global growth – namely, countries with large current account surpluses and the potential to expand domestic demand – must take a leading role in adopting policies to rebalance and sustain the global economy. this commitment was made by all of the g - 20 leaders, including those from china, indonesia, south korea, and other emerging markets. in the remainder of my remarks, i