Financial Futures: From the Great Moderation to ZIRP and Beyond

Financial crises have been an enduring phenomenon of the contemporary international economic environment. These crises tend to have two features in common. First, they are associated with very large capital flows. Second, they are triggered by relatively small differences in macroeconomic fundamentals, which encourage capital inflows, which in turn exacerbate the macroeconomic divergences. The result has been a series of boom-bust capital flow cycles. The crises that have ensued have been devastating. The experience of the past 25 years would appear to suggest the desirability of some form of international macroeconomic policy coordination to avoid a recurrence of these sorts of debilitating crises.