rakesh mohan : new economic geography and monetary policy in a flattening world comments by dr rakesh mohan, deputy governor of the reserve bank of india, as an overview panelist at a symposium sponsored by the federal reserve bank of kansas city, jackson hole, wyoming, 24 august 2006. all the papers presented in the symposium are available at http : / / www. kansascityfed. org / publicat / sympos / 2006 / sym06prg. htm * * * let me first thank tom hoenig and his colleagues for inviting me again to this symposium. it is always a treat to be here in more ways than one : to partake of the rich feast of insightful and interesting papers, illuminating commentaries and discussions, accompanied by the warm hospitality of the kansas city fed in this incomparable setting in the shadow of the majestic tetons. it is difficult to provide an overview of this rather disparate set of sessions reflecting various facets of globalisation ranging from the new economic geography to monetary policy. only someone as skilled as martin feldstein can do that effectively. as it happens, however, speaking on a personal note, the sequencing of this symposium coincidentally reflects my own evolution as a professional economist. i started out in research and policy as an urban economist, made my way through policy making in industry, trade and fiscal areas ; while finally ending up as a central banker in charge of monetary policy. so i will go through a similar sequence in my remarks in this overview, but perhaps spending more time on my first love, urban economics, since that is central to understanding the new economic geography. depending on the time i may not be able to get past my first love today. in any case i feel more comfortable with my first love than my current marriage to monetary policy! asian urbanisation : proximity promoting productivity anthony venables set the stage for this symposium through his succinct presentation on the new economic geography. among other issues, he focused on the productivity promoting aspects of proximity through the realisation of agglomeration economies from clustering of economic activities in large urban agglomerations. gene grossman and esteban rossi - hansberg characterised today ’ s trade pattern as trade in tasks in trying to understand the burgeoning off - shoring trends in production and service activities. i would like to draw your attention to some particular characteristics of asian urbanisation that have, in my view, contributed to the

as a proportion of gdp over the last years despite many challenges and a difficult environment. in 2007 the commission estimates that public spendings will represent 43. 8 % of gdp, which is 4. 3 percentage points less than in 1999. cooperation between the two major monetary authorities i hope i have by now convinced you that the monetary authorities in the united states and the euro area face challenges that are similar. internally, diversity in these large areas is of the same magnitude, although possibly not of the same nature. externally, both regions count on a large external sector, with significant bilateral linkages. similar experiences naturally call for close working relations. this interaction has become particularly intense since the advent of the euro and the setting up of the european central bank and of the eurosystem, but at the same time builds on a long - standing history of central bank multilateral cooperation in various international institutions and fora, including the bank for international settlements since the 1930s, the international monetary fund since the mid1940s, the g10 since the 1960s, the g7 since the mid - 1970s and, more recently, the financial stability forum and the group of twenty. contacts with the federal reserve these international organisations provide an excellent opportunity for the federal reserve chairman and myself, for the members of the boards as well as for the staff of both the fed and the ecb / eurosystem, to meet very regularly. to give you some idea of the level of contact we have, i can say that ben and i meet, through the g7, the g10, the g20, the imf and bis meetings, probably a little more than once a month on average. in addition, mr bernanke and i jointly participate in a number of international conferences. indeed, through our regular meetings, ben and i have built up a very close working relationship, a climate of mutual trust, and a platform for direct and quick contact in special circumstances that would require urgent communication. why is this important? the purpose of our contact is not the coordination of our monetary policies. this would be incompatible with the orientation of our policies towards our respective domestic objectives. rather, the benefit of our close contact lies in the in - depth exchange of information and views on recent economic developments, on the monetary, financial and economic outlook in our respective economies, and on the policy challenges ahead. this includes, as i discussed before, trade and financial linkages between our two economies, directly or via other economies. sharing first