those qualifications, here are a few thoughts on four important issues : • the role of balance sheet problems in creating vulnerability to crisis, • the challenge in designing an appropriate exchange rate regime and monetary policy framework for emerging market economies, • the conditions for dealing with progressively greater openness to capital flows, and • the role of policy reforms and financial assistance in crisis resolution. currency mismatches and balance sheet problems in general, the crises were the consequence of fundamental economic problems, often manifested in the buildup of substantial balance sheet problems, with excessive short - term borrowing in foreign currency by the sovereign, the banking system, or both. in asia, the accumulation of short - term debt was concentrated in the banking system. banks borrowed dollars and yen on a large scale and then lent those funds to corporations that earned their revenues in domestic currency. this created a mismatch between the currency denomisnation of the banks ’ liabilities and their assets. and this mismatch created an acute vulnerability to exchange rate risk. the rapid increase in foreign currency exposure was encouraged by fixed exchange rate regimes, since these created the illusion of protection from exchange rate risk. it was encouraged by tax incentives that favored short - term foreign currency borrowing through offshore banking centers. it was fed by the selective liberalization of capital controls on foreign borrowing, while limitations on equity inflows were left in place. it was exacerbated by classic moral hazard – the result of past government interventions to limit corporate and bank failures. and it was made worse by poor disclosure, which masked the scale of the increase in external liabilities and the deterioration in the level of official reserves. the scale of the buildup of foreign currency debt was fundamental to the dynamics of the crises. once confidence weakened, and fixed exchange rate commitments became unsustainable, the economies experienced a sharp reversal in capital flows as both residents and nonresidents sought to limit their exposure to domestic institutions and assets. this broad flight from domestic assets created conditions similar to a classic bank run. the exchange rate decline magnified concern about potential losses in the corporate sector and banking system, which led to a further shift in assets out of the country, which exacerbated the exchange rate decline. these balance sheet vulnerabilities led to a vicious cycle in which the exchange rate and financial weaknesses reinforced each other. as economies slipped toward the edge of the cliff, policymakers were left with alarmingly few options to try to contain the crisis and mit

john c williams : the longer - run framework - a look ahead remarks ( via videoconference ) by mr john c williams, president and chief executive officer of the federal reserve bank of new york, at the hoover institution monetary policy virtual series : the road ahead for central banks, 7 october 2020. * * * it ’ s great to be back in california participating once again in a hoover institution monetary policy event, even if only virtually. these conferences have provided an excellent opportunity for academic experts, policymakers, and practitioners to share research and perspectives on critically important issues. john taylor is both a friend and a mentor, so it ’ s a particular pleasure to be sharing this online platform with him today. this summer, the federal open market committee ( fomc ) completed its review of the fed ’ s monetary policy framework. this culminated in august with the issuance of a new statement on longer - run goals and monetary policy strategy. 1 the fomc put this strategy into practice in its september policy statement, explicitly tying its policy actions and intentions to the new framework. 2 the new policy framework represents a substantial evolution of the fomc ’ s thinking and approach since the committee published its first framework statement in 2012. today, i ’ m going to talk about what these changes mean for policy as the economy recovers from the effects of the pandemic. but what i ’ m really looking forward to is our conversation around these important issues, so i ’ ll keep my opening remarks brief. before i go any further, i need to give the standard fed disclaimer that the views i express today are mine alone and do not necessarily reflect those of the fomc or others in the federal reserve system. our dual mandate goals while our monetary policy approach has shifted, our fundamental goals have not. the fed has two goals set by congress : maximum employment and price stability. these “ dual mandate ” goals remain on an equal footing, and our commitment to delivering on both has not changed. in addition, our assessment that a 2 percent long - run inflation rate is most consistent with achieving both of our dual mandate goals is unaltered. what has evolved is how we think about best achieving them. like all institutions, the federal reserve must be responsive to changing circumstances and adapt to new realities. since 2012, we have learned a great deal about the behavior of the economy, employment, and inflation — both in the short and longer run — and these lessons have informed our approach to