areas. and this makes a big difference in regard to the issue of water because there are some in the -- not just bordering with the u.s. and very north, it's a dry area, but as soon as you move a little bit further south especially in veracruz there's a lot of water. it's a completely different thing. now, we are not going to pollute the water. the issue is what techniques to use to return the water in the same conditions that they were taken from nature. and that will -- the good thing is that there's a lot of ways that have been already -- a progress that has been made here and in the u.s. with technologies and with the know hows of how to do that. that mexico will benefit just by sort of receiving the know how with the investors that will be interested in doing that.

and the down side of that is that most probably there will be a contamination of the discussion because the discussions of these are transnationals and they will clearly raise the issues. it's already starting an interesting debate about those issues. but those are the ones that -- i'm not talking about the air, that's a different -- emissions of co 2 or something like that, that's different. i'm talking about more the water issues. >> we've got three more questions, i think that's going to have to wrap it up because i know two of our speakers have tight travel schedules. one and two more over here. >> thank you very much for your presentations. i'm from georgetown university. there have been many comments about the excess of optimism in the goals and benefits from the energy reform recently. the oxford incident which i believe mr. haas is somewhat

familiar because it was a paper recently released that was highlighting the lack of services for the water exploration, that the new fields would hardly offset the production in mature fields and one of the current ceo -- current pemex counselors said that the government should address in the secondary regulations and the secondary legislation whether the country should follow model of production with a dominant regulator or a dominant producer. and my question on the international aspect is that the discussion about international prices, self-sufficiency does not necessarily mean independence from markets because we recently saw the instability of prices with the iraq war. so in this context, how will the mexican government will address and will try to attract and

retain foreign investment? >> let me have two more and then we'll finish. >> hi, i'm jason finerman, a student at penn state university. i was wondering if the panel could elaborate more on the fiscal structure of the proposed exploration and production contracts. and also what are pemex's strategies relating to them diversifying their international trading partners and what role do u.s. and chinese firms play in this investment? >> good afternoon. i'm doing an internship here in a consulting company but i'm a mexican citizen so i'm going back to mexico and mr. haas mentioned that there are a lot of questions between mexican people about how these reforms are going to give me a benefit as a mexican citizen. as far as i know the taxes that

pemex paid, it's about a 44 cent annually for the mexican budget so i think that if we bring new companies that are going to actually sell this same product that pemex sells, i think, so pemex sales are going to drop and if mexico is inviting other companies to invest in mexico, i think mexico needs to offer something that is attractive. so my question is whether these companies are going to pay the same amount of taxes that pemex paid or if not where is this money coming -- this money that pemex is going to stop producing, how mexico is going to produce this money or where is this money coming from? >> and maybe you can answer the global -- do you have time? >> let me start with the fourth and then we'll go backwards if

that's okay. because i think the fourth is very important. the guidelines that are in the legislation about how the contracts will be are very similar to international -- the international guidelines. there are a couple of issues. but there are like four variables that the government will actually move when craft canning contracts with the private parties in terms of granting them a permit or license to exploit some areas. the -- i think the bottom line of all these discussions is the followi following. mexico will have to have a competitive contract scheme. because the -- otherwise it will be an absurdity in the context of reform.

you make the reform because you want more investment, both private and public into the hydrocarbon sector. it's not bringing private investment instead of pemex's investment, because that would then -- it would be a -- sum-zero game. you need to keep pemex investing and bring other players in competition or in partnership with pemex to bring additional resources so that you can multiply the number of wealthy drills and the installations and the facilities being constructed and so on. so the contract, the taxing aspect of those contracts will have at the end of the day to be kpetive to international -- wkpr nati -- international standards so that is the basic point. it doesn't matter which one of

those four variables they move. that depends a lot of if the government is eager to get some resources sooner than later or if they are willing to sacrifice some resources, some income from those contracts in the short term for the future. and then you can do all sorts of plays with that and models and all that. but bottom line is the number at the end that the government takes that mexico's government is going to take from the contracts that will be negotiated with private parties and with pemex will have to be internationally competitive. and the clarity is there. there are some other issues that maybe the scheme is a little bit too complex because the treasury wants to have an opinion in each contract, things like that is bureaucracy and is in my view not needed and should be done in

a more systemic way. but those are secondized. the issue is the mexican -- i don't know if i responded to your question. >> i have a complementary take on this. i think that one of the issues that the government faces is the selection of the assets that it wants to put on the block and the sequencing. that's really important. let me just give you an example to stop speaking conceptually. let's say that you start the auction with deep water offshore in areas where pemex has actually -- you know it says it has found something, it's uncertain how much and there's no reserves and the prospect is kind of doubtful. well, you know, you have a ten

to 12-year span between discovery and first oil, you have very low prospectivity. you have some seismic data but not really a lot. so you're taking a lot of risk and if you want to go into that -- if you want to start your auctioning of acreage that way you're going to get very few players because there's not too many people who play in that. that's very ultra deep water and there's low prospectivity and there's a lot of risk and very long life cycle to first oil. now if you start on the other hand with -- and nobody knows what the energy reform is going to look like and what are the issues, all of that remains to be tested so you're starting with very high-risk stuff and

with a very uncertain practical application of the reform. now, let's say that you do it otherwise, you say "i'm going go to shallow waters offshore. i'm going the auction the block that's between two sites. those blocks right there." prospectivity is very high. there's a lot of hydrocarbons and, you know, if you're an oil man, where do you look for oil? where there's already oil. and so you have shallow waters which are very easy to operate in. it's 150 feet of draft, you have a lot of undersea infrastructure because the pipelines are designed for 3.5 million barrels a day and you're now at 2.5 million barrels. and you know it's relatively low risk in comparison to ultra deep water. so the amount of money that people are willing to pay for

that acreage, the enthusiasm that you're going to have for that acreage is a lot higher. so it doesn't only depend. i mean, i agree with what jesus was saying but it doesn't only depend on the marginal tax rate and the royalty rate, et cetera. it also depends on how you want to start and i know that pemex gets ulcers when thinking that the mexican government could auction blocks in shallow waters offsho offshore because that's their turf and where they think they have the chance but the question is if you're thinking about the development of the mexican oil sector and you're thinking of attracting foreign investors, if it was my money i would start with shallow waters. and then you improve the concept, you bring in people with low-risk issues and you're going to have a lot of competition.

you have many more companies that can operate in that environment and once you prove the concept and you start filing the -- sending the rough edges then you get a much sturdier legal infrastructure and regulatory infrastructure. you're proven the concept and then you can move on to more complicated areas. so there's a big decision on the part -- i have no idea what they're going to decide. i'm not privy to those discussions but they have to make design discussions, they have to make sequencing discussion discussions. they have to make decisions based on sequencing, based on how much they're going to give to pemex of that request that jesus was talking about and all of that is going to be having an impact of the unfolding of the

refo reform. >> does the changing situation in north america have a -- change the policy goals or targets about where mexico would send that oil now? i think one question that was asked is whether new oil will be going to china or -- just going go with the market? >> i spent 12 years in international trade and then i consulted for many companies worldwide on international trade issues. crude oil is cash. >> i remember that hedging. >> yes. there is no problem with selling crude oil. the only question is at what price are you going to sell it? and that has two dimensions to it. one is the efficiency, are you getting the market price? you're not going to get more than the market price. you have to be careful not to get less than the market price and the second is whether you're maximizing the net back because you're going to the right market.

that's all there is. now, pmi, i think, has the international trade subsidiary of pemex as the capability, analytical and commercial, to market the crude oil wherever it makes the most money. it's the question of whether mexican energy policy will give it the freedom to execute whatever sales strategy is needed to maximize the return. but that's all there is. i don't think there's any particular mystery in it. >> did your question get answered? [ inaudible question ] >> i don't think they're going to meet -- i mean, the government has a three million barrel a day goal by the end of this administration. the number is not two million

and a half current production, it's two million, three hundred fifty thousand as i mentioned. and plus you have the decline and to make up for that i just don't think that they're going to be able to reach two million barrels a day. now, i think there's another issue which is that one of the problems we have is that the government, i believe, from the very beginning, because it had all these political constraints and it had to make sure that the whole legislation would pass, etc., has been making a lot of commitments and promises. you know, volumes of production, declining prices to the public, et cetera. i just don't think those are tenable. and i don't think people believe them. and i think the government can get in trouble because it promises things that it's going to have a hard time delivering. does that mean that it invalidates the reform? i don't think it invalidates the

reform. this is a very ambitious, complicated reform. it's going to take some years to get done and polished and executed in a way that, you know, has never been done in mexico. and so it's normal that we're going to have bumps in the road. the problem is if you promise that there's not going to be any bumps and then there are bumps people are going to say "he lied to me." come on. i mean -- >> the exceeded expectations is part of the process of selling the reforms. every government tries to push for a reform, regretfully falls into promising things that are too optimistic. and that happened also with the energy reform in mexico. and it has different implications in mexico and outside. so the issue here is managing the expectations because the reform is a very serious, very profound reform. you already -- the government finally after 70 years of

discussion in mexico actually made the woulder to the top of the mountain and the ball is rolling and it's going to a huge ball when it gets down so let's not hope -- let's not lose hope -- not hope but perspective of that. that is true now. bombs and non-bombs, expectations of short term and changes and so on. that will happen but it's a reality. i want to add one element in regard to that and along with that because one also has to be confident about the capacity of mexico. just think about the changes in the energy and gas reform of '94, '96, whatever. at the end of the day it did work. it took time. the regulations were there. nafta before that nafta, institutions are there. i mean, the country has been able to build up the institutions that are needed to

implement big changes like that so -- and the country an open country. so there are many questions the mexican economy will have the capacity to respond to a very demanding -- a high demand for labor and you talked about that for labor and supplies and companies and engineering capacities and so on and the responses "mexico by itself?" no, but it's an open economy and just -- it's enough to remember you have to u.s. and canada right there. so with that the capacity of mexico -- i'm not concerned about the capacity of mexico in that aspect of it. regulations you can have regulations of ten, nine, eight, five, you can read them but it's there. >> i have a problem there and this is a discussion we might need to have at a later date but

i think the gas regulation to me -- and i will see with pemex gas when it happened -- was exactly example we had to avoid. we had constitutional reform, we had regulatory reform, we created the cre. we had all the bells and whistles and i think the reform failed. and the proof that the reform failed is that the economy has had gas alerts, gas supply alerts, and that it has been impossible to build the infrastructure to supply mexico with the gas. and that's the thing that we have to avoid. we have to avoid a regulatory -- a legal and regulatory environment that does 95% of the work and then falls short of the last 5% that you need to actually execute the point. and there is that risk. i think it's going to be -- i think it's going to work, but i think it's going to be complicated and i think there is

the risk in this particular case that we also fall short because of x, y, or z, just like we did at the time of the gas reform. i hope it's not the case, but it's a complicated issue and i think that unless we're very, very aware that it may happen to us again, i think we run the risk that it will. if we are aware that it happened to us and that we are able to go back and see what went wrong and we avoid the same mistakes i think then we have a better chance. but it's not that easy. it's not -- you know, a piece of cake. >> well, thank you all for a very realistic assessment. [ applause ] thank you, ambassador, for coming and joining us and thank you all for joining us.

>> the senate homeland security committee holds a hearing wednesday on security along the u.s./mexico border where there's been a recent influx of unaccompanied minors crossing into u.s. territory. the heads of fema and u.s. customs and border protection will join other government officials to testify. that will be live wednesday at 10:00 a.m. eastern here on c-span 3. and on thursday, homeland security secretary jay johnson and health and human services secretary sylvia burwell will be on capitol hill. they'll be before the senate appropriations committee to discuss the president's request for additional funding to deal with the situation along the border. that's thursday at 2:30 p.m. eastern, live coverage here on c-span 3.

>> tune into book tv this weekend for the harlem book fair with discussions on the state of african-american multicultural publishing and the arts movement. live coverage starts at 11:45 eastern on c-span 2's book tv. >> next, federal reserve chair janet yellen talking about monetary policy and the economy at a recent lecture series hosted by the international monetary fund. the event begins with opening remarks from imf managing director christine lagarde and michelle camdasue who served as director from 1987 to 2000. this is an hour and a half. >> it is a tremendous privilege to open the lecture series in the actual presence of the person to whom this series is actually dedicated. thank you, michelle, for being

with us. [ applause ] and it is indeed a momentous occasion to welcome here at the imf the chair of the u.s. federal reserve, the distinguished janet yellen. [ applause ] and, indeed, all of your distinguished guests are also recognized collectively and very much welcome. and i applaud you. [ applause ] now, this lecture is at the heart of what we do. the fund has a core mandate of overseeing the global financial system and over the years the mandate has evolved with changing global conditions. we initiated this lecture series to meet two important goals -- the first one is to reflect on the current crisis, what we have

learned from it. the second goal 1 to build stronger bridges among those preoccupied central banking. and that includes central bankers indeed, but it goes beyond that circle. let me start with why we need to reflect on the recent crisis period and take stock of lessons learned. the global financial crisis has been a bit like an earthquake. it has shakened the financial system, swayed many of our assumption and traditional policy prescriptions. it has changed the policy landscape, diverted streams usual in the central banking world. that world that was formally rather flat with little blips now and again except in times of high crisis, little blips of about 25 basis points at a time but otherwise no major changes. well, on this new terrain,

central bankers are quickly learning to be mountainous and they've been busily developing new ideas and new tools. central banking has suddenly become a very exciting sport. so much so as to attract a global audience. not as much, probably, as what the world cup is attracting at the moment, but still. and janet, you would be very surprised to hear that actually wherever you give a press conference in this institution you have a group of total aficionados who get together in front of the screen, watch with you with great impatience, and i'm even told they bring coffee and popcorn. monetary policy and central banking have come to the forefront of the policy landscape because of the role they have played in fighting this crisis and returning us to stability. and because of the role they continue to play today and the role that they will probably

continue to play in the future because it will not be business as it was. the fund's global membership, 188 countries recognize this. they recognize this and they question us more and more regularly on those issues. and the questions are getting more and more technical and sophisticated. so we need to provide answers. we need to provide directions on paths yet untrodden. which brings me to the second objective of this lecture -- the need to build stronger bridges between all those with a stake in the important issues of central banking. we need to reexamine, refine, and modernize our policy advice on monetary policy and central banking. yet this is a task that is too large for one single institution to undertake alone and this applies as well to the imf, not withstanding the fact that we

have those 188 members. the knowledge on these issues does not exclusively reside in one central bank, however big it is. it is. it doesn't reside in any one single institution. it resides in multiple, multiple conference rooms, in multiple rooms altogether, and it is all those with knowledge about it that need to be together. >> certainly we can bring our cross-country expertise to bear. our experience in collaborative international efforts and our expertise in looking at the big picture of economy policy. at the same time, our goal is clearly to join hands with mechanics, with central bankers, to think together, to explore together, to compare notes and to move forward together. to build stronger bridges. the lecture is strded to be a pillar on which these bridges

will rest. by creating space for this policy, a meeting that would bring the central banking community and the fund closer together year after year. now, before i leave you to the wisdom of our speakers, allow me to highlight three of the main questions on the future of monetary policy. first question, the crisis was a stark reminder that price stability is not always sufficient for greater economic stability. so, should central banks put more weight on growth and employment? should central banks mandates be enlarged to also cover, not just price stability, but also financial stability? what role should monetary policy play in preserving financial stability? and how to make sure that central bank independence as regard monetary policy is

preserved. second, with increasingly complex financial interconnections, many small open and emerging market economies have found it challenging to deal with large swings in capital flows, asset prices and exchange rates. how can these economies retain monetary policy independence in such a policy setting? and what tools should they use? finally, a crisis has galvanized a brad effort to reframe the regulatory framework. there has been progress, but much still remains to be done. how will financial regulations and the new structures of the financial system affect the functioning of monetary policy domestically and abroad? to all these questions, i'm sure that some of you have the beginning of the answers. i know that our speakers will offer their proposals, but i hope that it begins here.

now, before i give the floor to chair yellen, it is my real pleasure to introduce the person to whom this lecture series is dedicated and who has kindly agreed to be with us today and has traveled from paris yesterday, michel camdessus. [ applause ] his legacy is well known to us all. michel, you presided over the fund for 13 years. you were its longest serving manager director and your stewardship was transformational for this institution. soon after you took the helm, in 1987, the world as you knew it, as we all knew it, suddenly went into shamble. and it was undone radically and

unexpectedly. you managed the fund through the fall of the berlin wall, the unraveling of the soviet union, the mexican crisis, the asian crisis, and the russian crisis. yet, when you announced your intention to retire and some frivolous porter asked you what's your successor should have as a main attribute, you said immediately without even thinking about it, solid sense of humor. [ laughter ] now, throughout these difficult and dynamic times, you steered the fund with remarkable vision, with vigor, and with tenacity and also with humanity. your interactions with country authorities were characterizes by a unique skill in galvanizing favorable outcomes. you became a household name from moscow to warsaw to bish kek,

providing an element of continuity amid continuous turnover of political and public figures. your untiring efforts also brought a more human face to the fund. indeed it was your compassion for the poor that took the fund in his most important direction toward poverty reduction through the establishment of concessional lending through the enhanced structural adjustment facility its now successor, the prgt. and your compassion extended well beyond the fund. i'm supposed now to show you something which some of you will recognize. it is the seven pledges of michel camdessus, and i have to pay tribute to mr. keekins who i see somewhere in the back, who was kind enough to let me have his card of the seven pledges. seven pledges on sustainable development that became part of

the 15 principles of the u.n. millennium development goals. michel, you were, and still were a staunch supporter of corporation, upon openness and friendship between nations. under your leadership effort was made to exchange restrictions under article 8. as a result, by the mid '90s, making a public commitment to openness was no longer controversial in many countries. and with openness came the need to better integrate. you witnessed the globalization of financial markets and and as a central banker yourself, you had the foresight to recognize they needed better integration of its work in monetary and exchange rate policies. you saw the financial stability assessment program evolve from a pilot to become a key activity

and major output of the fund and the bank, because it's one of those products which we cooperate very well. in fact, thanks to your efforts, the imf was able to transform the moniker of it's mostly fiscal, to it's also monetary and financial. thank you, michel. finally, you and your wife bridgit always harbored a genuine affection for the staff of this institution, you were deeply concerned with their well-being and stood up for their cause and so did your wife. staff reciprocated with their trust, respect, and abiding affection for you too which is as clear from the audience here today, remains powerful. the staff admire you personally and what you've achieved for this institution and the membership. we thank you for it. as a music lover, you referred to the staffs as the strat

various of the world orchestra. [ applause ] it was, indeed a string orchestra in the main so there were plenty of strat various who made up this orchestra which today you have another opportunity to engage with and we cannot wait to be part of one of your encore. thank you. [ applause ] >> well, friends, you could imagine that i am a little bit overwhelmed by what i have just heard. i had the impression that you were talking about somebody else. [ laughter ] but let me tell you thank you for the kind introduction and

also for the pleasure of being here, back in the fund. well, it's a little bit like coming back home, a very warm and welcome home. of course i could talk about ulysses going back or something like that, but the story stops there because there is no penelope here waiting for me. [ laughter ] yes, it's true that the time which i have spent in the imf, 13 years, is exactly the same as the time which went from today when i am back here, but it's my

great pleasure to see many familiar faces, and not only in the first row, but many more in this huge audience, and of course i will be happy if i could see, but those who are over there, if i could say hello sometime later. [ applause ] well, and what i perceive also is plenty of moments coming to my mind, all these moments of very high pressure, and you have mentioned a few of them, but moments of high pressure but higher excitement, i should say. and all of that contributing to

create this very special atmosphere of this institution, dynamic, professional, focused, with people never satisfied with what they have just done, and looking forward for finding the ways of doing better. this is to my judgment the imf. so thank you, thank you again for this great pleasure and for the great honor, totally undeserved honor of giving my name to this lecture. totally undeserved. but this is something between you and i we will have to discuss further later on. [ laughter ] i am proud of that and the presence with us today of the chair of the federal reserve,

add her prestige to the event and to the series of lecture. i will have to get used to seeing my name on that. okay. but, but, it makes great sense to devote further efforts to the issues around central banking. even if many of you know here that i have not been all my life a central banker, as i even started in the minister of finance in my country. at the time, it wthe bank of fr was not independent and we had to say the bank must be in the hands of the state, but not too much. and be sure that i made everything i could to comply

with the second part of the sentence. then, but, okay, the bank of france finally got independence in 1993, and many other institution made this change, a change which is certainly one of the most profound changes in central banking during the last decade. today, perhaps even more than in the past, everybody recognize that the economic well-being of nations depends on the quality of the monetary policies. so one couldn't imagine a more important topic for new lectures here in the imf. but why, why central banking finally is so crucial? obviously because the monetary stability is a key component of

the common good, global common, as they say in new york. yes, and by stability, we mean low and stable inflation, and we know from bitter experience, so many bitter experiences in the archives of the imf, about the damage that high and volatile inflation can do. and we know much better now also the pernicious effect of inflation. we also understand clearly now that in order to achieve price stability, we need some policy framework directed to other financial sector. something we which was not that

familiar when i join the imf. financial sector was an area where we were not allowed to go. and i remember tremendous conversation with mrs. thatcher about that when i went to see her and we started discussing about suggestions i wanted to make to the banking community. and then she told me, never lecture the bankers! never! [ laughter ] and of course we continued lecturing a little bit the banks, but, but nevertheless, we were in difficult grounds. yes, but more reasons for the centrality of central banking and something which is very unique. their ability to respond quickly to the shock.

fiscal policy is fundamentally important, but they are not able to change course as quickly as monetary policy. and of course we've just had very good demonstration of that with the crisis that erupted. without the timely and decisive actions of the united states federal reserve and other central banks around the world, the crisis would have been much, much worse. well, suffice to justify not the name of the lecture, but the principle of the lectures. and if we go back to the history, you are already help us to revisit, christine, we see many examples of the changes

which have had to be introduced in the central banking universe. we had this huge transformation of eastern europe and former soviet republics. and there, of course, the imf staff had to do an extraordinary job being there and providing technical assistance. coordinating efforts to create central banking in a universe where money -- monetary policy had not the same meaning. as a matter of fact, they had no meaning at all. and all of that had to be created from scratch, creating the central banks, along with the supporting banking, payments, accounting, and other

financial infrastructures. the work was enormous, and here i must have mistake of my heart to the exceptional dedication of the staff working in this field. and then we had the asian crisis. it was a very different kind of episode. we had central banks there, and they were severely tested in the affected countries. we had a few false starts in some cases, and stan remembers pretty well. but also took decisive stabilization measures, but more important probably are the lessons which were learned from them, by them, and by the imf in that occasion. one was that financial

vulnerabilities can be even when microeconomic fundamentals appear sound. this was the surprise of that moment -- one of them. another was that the risk from large and volatile capital flows equal large, larger foreign exchange buffers. and we had some difficulties in convincing our membership that you had to add a zero to the numbers of our loans in several countries. we had some problems with that. but we did. and then we had the changes in central banking policy framewor frameworks, introduce here with enormous effort from the staff,

and they have paid off. and we had a demonstration of this pay-off in the fact that all these countries have been extremely quick in weathering the recent global crisis. of course one could regret that the advanced economies have not realized deeply enough after the asian crisis, that their own financial system too might be vulnerabl vulnerable. and other kind of surprises in this world. but we paid a certain price for that. a very certain price. but after expressing that, i must say in the positive side, that in europe, to say the world about europe, we challenge the

experience of creating a new currency. in europe, we have seen the central banks, and more broadly, the governments draw two important lessons from this crises. one, the importance of adhering to fiscal rules. intellectually, to say that the adherence is changing the landscape is another thing. but this is a lesson which has been well received. and another one, the importance of common arrangements for banking visions and crisis resolution, an issue for which my predecessor, our predecessor,

has made a very superb job over the last few years. okay, i know that the change in the years was the inflation. an invention at the end of the '90s which was finally, well, it went around during my last stay here, and this was an enormous transition to which continues running its course. all of that to say, and i see the time is running, that one of the features of the central banking finally, we chose for so long, an arc type of immobility, superb immobility, is always changing. the definition of central bank is changed now. changes are at time small.

although they are deep and widespread, change is often induced by outside pressures, but can also happen by design. we know all of that. in any case, it is important that the implications of such changes be carefully considered. if i had time for that, i would take that time. when i was appointed central bank governor, i went immediately to see my predecessor, to have his instructions. and he tell me only one. only one, remember, my friend, in central banking, nothing is urgent. nothing is urgent. take always all the time needed to carefully think about and

then finally either the crisis will be over -- [ laughter ] -- either you will make the right decision. well, i was not 100% sure that he was right, but nevertheless, i keep that in my mind, and i -- what the conclusion i draw -- i did draw, okay, what to think. well, two things. one, invest in capacity, talent, applied research, analysis, to try to stay in the cutting edge. and remain open to new ideas and perspectives. we are now in a new period of

questioning. usual with global financial crisis of course. and of course i couldn't agree more with what the managing director just said. the crisis has taught us that rules, principles, practices, where in the past years, a little bit too simple, that monetary policy can creatively, the word creatively was not very popular in central banking several years ago -- can creatively deploy temporarily non-standard and conventional measures when necessary. new tools such as policies and the eternal lesson that preventing crises is substantially less costly than

managing and containing them. but this crisis has left us also with major unanswered questions. in the immense uncharted field that central banks have in common, the international monetary system. here i couldn't do better than to echo the words of my elder brother in central banking, paul volcker, who in his remarks at the annual meeting one month ago, of course in that speech, paul, you raise plenty of interesting points. you alluded to the dilemma, the so-called -- and the invention

of the sdr, of which you are helping yourself a kind of missionary around the world at the beginning of the '70s, should keep that on record. well, but what i wanted to say is that like to repeat your plea for attention to the need for developing a whole base cooperatively managed monetary system worthy of our time. i look forward with high expectations to the measures the central banking community will adopt to face this challenge in their continuing quest for global frameworks and policies

that would lead us to greater global stability and prosperity. i have no doubt that the imf, faithful to its purpose, to promote international monetary cooperation and to provide the machinery for consultation and collaboration on international monetary problems, will contribute -- and these are your own words, paul -- to provide the necessities and well conceived approaches that could command attention and support in this long journey toward a better system. may our new lectures contribute to it. thank you, thank you all very much. [ applause ]

>> thank you very, very much, michel, and listening to you, i was actually going to revisit our traditional thinking about central bankers. no, they are not boring men in gray suits. they're capable of changing and they're even capable of not being men. [ laughter ] which is why i'm not going to spend any more time -- [ applause ] -- introducing to you and living with you an extraordinary woman whom i greatly admire, i have about five pages of compliments and reminders of all her achievements and how much she has done, but i will spare you that because you're all convinced as well as i am, as first woman to take the chair of the federal reserve board last february this year, janet, we all look to you and your deep experience and everything that you bring to the table to guide us in those difficult times. i know you're going to navigate

us between price stability, financial stability, and many other issues. the floor is yours and we're all expecting. [ applause ] >> thank you, christine. it's an honor to deliver the inaugural michel camdessus central banking lecture. michel camdessus served with distinction as governor of the bank defrance and was one of the longest serving managing directors of the international monetary fund. in these roles, he was well aware of the challenges central banks face in their pursuit of price stability and full employment. and of the interconnections between macro economic stability and financial stability. those interconnections were apparent in the latin american debt crisis, the mexican paceo

crisis, and the east asian financial crisis, to which the imf responded under camdessus' leadership. these episodes took place in emerging markets economies. but since then the global financial crisis and more recently the euro crisis, have reminded us that no economy is immune from financial instability and the adverse effects on employment, economic activity, and price stability that financial crises cause. the recent crises have appropriately increased the focus on financial stability at central banks around the world. at the federal reserve, we've devoted substantially increased resources to monitoring financial stability, and have refocused our regulatory and supervisory efforts to limit the

build-up of systemic risks. there have also been calls from some quarters for a fundamental reconsideration of the goals and strategy of monetary policy. today i will focus on a key question spurred by this debate. how should monetary and other policy makers balance macro prudential approaches and monetary policy in the pursuit of financial stability. in my remarks, i will argue that monetary policy faces significant limitations as a tool to promote financial stability. its effects on financial vulnerabilities such as excessive leverage and maturity transformation are not well understood and are less direct in a regulatory or supervisory

approach. in addition, efforts to promote financial stability through adjustments in interest rates would increase the volatility of inflation and employment. as a result, i believe a macro prudential approach to supervision and regulation needs to play the primary role. such an approach should focus on, through the cycle standards, that increase the resilience of the financial system to adverse shocks, and on efforts to ensure that the regulatory umbrella will cover previously uncovered systemically important institutions and activities. these efforts should be complemented by the use of countercyclical macro prude eeshl tools, a few of which i will describe. but experience with such tools remains limited and we have much to learn to use these measures

effectively. i'm also mindful of the potential for low interest rates to heighten the incentives of financial market participants to reach for yield and take on risks. and of the limits of macro prudential measures to address these and other financial stability concerns. accordingly, there may be times when an adjustment in monetary policy may be appropriate to ameliorate emerging risks to financial stability. because of this possibility and because transparency enhances the effectiveness of monetary policy, it's crucial that policy makers communicate their views clearly on the risks to financial stability, and how such risks influence the appropriate monetary policy stance. i'll conclude by briefly laying out how financial stability

concerns affect my current assessment of the appropriate stance of monetary policy. when considering the connections between financial stability, price stability, and full employment, the discussion often focuses on the potential for conflicts among objectives. such situations are important since it's only when conflicts arise that policy makers need to weigh the trade-offs among multiple objectives. but it's important to note that in many ways, the pursuit of financial stability is complementary to the goals of price stability and full employment. a smoothly operating financial system promotes investment, facilitating economic growth and employment. a strong labor market contributes to healthy household and business balance sheets. thereby contributing to financial stability. and price stability contributes

not only to the efficient allocation of resources in the real economy, but also to reduce uncertainty and efficient pricing in financial markets, which in turn, supports financial stability. despite these complimentarities, it has powerful effects on risk taking. indeed the policy stance of recent years has supported the recovery in part by providing increased incentives for households and businesses to take on the risk of potentially productive investments. but such risk-taking can go too far. thereby contributing to fragility in the financial system. this possibility does not obviate at the need for monetary policy to focus primarily on price stability and full employment. the cost to society in terms of

deviations from price stability and full employment that would arise, would likely be significant. i'll highlight these potential costs and the clear need for a macro prudential policy approach by looking back at the vulnerabilities in the u.s. economy before the crisis. i'll also discuss how these vulnerabilities might have been affected had the federal reserve tightened monetary policy in the mid 2000s to promote financial stability. although it was not recognized at the time, risk to financial stability within the united states escalated to a dangerous level in the mid 2000s. during that period, policy makers, myself included, were aware that homes seem overvalued by a number of sensible metrics. and that home prices might

decline. although there was disagreement about how likely such a decline was and how large it might be. what was not appreciated was how serious the fall-out from such a decline would be for the financial sector and the macro economy. policy makers failed to anticipate that the reversal of the house price bubble would trigger the most significant financial crisis in the united states since the great depression. because that reversal interacted with critical vulnerabilities in the financial system and in government regulation. in the private sector, key vulnerabilities included high levels of leverage, excessive dependence on unstable, short-term funding, weak underwriting of loans, deficiencies in risk measurement and risk management, and the use of exotic financial instruments that redistributed risks in

non-transparent ways. in the public sector, vulnerabilities included gaps in the regular tore structure that allows some systemically important financial institutions and markets to escape comprehensive supervision, failures of supervisors to effectively use their existing powers, and insufficient attention to threats to the stability of the system as a whole. it's not uncommon to hear it suggested that the crisis could have been prevented, or significantly mitigated by substantially tighter monetary policy in the mid 2000s. at the very least, however, such an approach would have been insufficient to address the full range of critical vulnerabilities i've just described. a tighter monetary policy would not have closed the gaps in the

regulatory structure that allows some markets to escape comprehensive supervision. a tighter monetary policy would not have shifted supervisory attention to a macro prudential perspective, and a tighter monetary policied not have increased the transparency of exotic financial instruments or ameliorated deficiencies in risk management within the private sector. some have the view that a substantially tighter monetary policy may have helped prevent the crisis, might acknowledge these points, but they might also argue that a tighter monetary policy could have limited the rise in house prices, the use of leverage within the private sector, and the excessive reliance on short-term funding, and that each of these channels would have contained, or perhaps even prevented the worst effects of

the crisis. a review of the empir cal literature suggests that the level of interest rates does flungs house prices, leverage and maturity transformation. but it's also clear that a tighter monetary policy would have been a very blunt tool. substantially mitigating the emerging financial vulnerabilities through higher rates would have had sizeable adverse effects in terms of higher unemployment. in particular, a range of studies conclude that tighter monetary policy during the mid 2000s, might have contributed to a slower rate of house price appreciation. but the magnitude of this effect would likely have been modest, relative to the substantial momentum in the prices over the period. hence, a very significant tightening with large increases in unemployment would have been

necessary to halt the housing bubble. such a slowing in the housing market might have constrained the rise in household leverage, as mortgage debt growth would have been slower, but the job losses and higher interest payments associated with higher interest rates would have weakened household stability to repay previous debts. suggesting that a sizeable tightening may have mitigated vulnerabilities in household balance sheets only modestly. similar mixed results would have been likely with regard to the effects of tighter monetary policy on leverage, and reliance on short-term financing within the financial sector. in particular, the evidence that low interest rates contribute to increased leverage and reliance on short-term funding, points to some ability of higher interest rates to lessen these

vulnerabilities. but that evidence is typically consistent with a sizeable range of quantitative effects where altative views regarding the causal channels at work. furthermore, vulnerabilities from excessive leverage and reliance on short-term funding in the financial sector grew rapidly through the middle of 2007. well after monetary policy had already tightened significantly relative to the accommodative policy stance of 2003 and early 2004. in my assessment, macro prudential policies such as regulatory limits on leverage and short-term funding, as well as stronger underwriting standards, represent far more direct and likely more effective methods to address these vulnerabilities. turning to recent experience

outside the united states, a number of foreign economies have seen rapidly rising real estate prices, which has raised financial stability concerns, despite in some cases, high unemployment and short falls in inflation relative to the central bank's target. these developments have prompted debate on how to best balance the use of monetary policy and macro prudential tools in promoting financial stability. for example, canada, switzerland, and the united kingdom have expressed a willingness to use monetary policy to address financial stability concerns in unusual circumstances. but they've similarly concluded that macro prudential policies should serve as the primary tool to pursue financial stability. in canada, with inflation below target and output growth quite

subdued, the bank of canada has kept the policy rate at or below 1%. but limits on mortgage lending were tightened in each of the years from 2009 through 2012, including changes in loan to value and debt-to-income caps, among other measures. in contrast, in norway and sweden, monetary policy decisions have been influenced somewhat by financial stability concerns. but the steps taken have been limited. in norway, policy makers increased the policy interest rate in mid 2010, when they were facing escalating household debt, despite inflation below target and output below capacity, in part, as a way of guarding against the use of future imbalances, end quote.

similarly sweden's bank held its policy rate, quote, slightly higher than we would have done otherwise because of financial stability concerns. in both cases, macro prudential actions were also either taken or under consideration. in reviewing these experiences, it seems clear that monetary policy makers have perceived significant hurdles to using sizeable adjustments in monetary policy to contain financial stability risks. some proponents of a larger monetary policy response to financial stability concerns might argue that these perceived hurdles have been overblown, and that financial stability concerns should be elevated significantly in monetary policy discussions. a more balanced assessment in my view would be the increased focus on financial stability risks, as appropriate in

monetary policy discussions, but the potential cost, in terms of diminished macro economic performance is likely to be too great to give financial stability risks a central role in monetary policy decisions, at least most of the time. if monetary policy is not to play a central role in addressing financial stability issues, this task must rely on macro prudential policies. in this regard, i would note that here too policy makers abroad have made important strides, and not just those in the advanced economies. emerging market economies have in many ways been leaders, employing in recent years, a variety of restrictions on real estate lending or other activities that were perceived to create vulnerabilities.

although it's probably too soon to draw clear conclusions, these experiences will help inform our understanding of these policies and their efficacy. if macro prudential tools are to play the primary role in the pursuit of financial stability, questions remain on which macro prudential tools are likely to be most effective, what the limits of such tools may be, and when, because of such limits, it may be appropriate to adjust monetary policy to get in the cracks that persist in the macro prudential framework. in weighing these questions, i find it helpful to distinguish between tools that primarily build through the cycle resistance against adverse financial developments, and those primarily intended to lean

against financial excesses. tools that build resillience aim to make the financial system bedroom able to withstand adverse developments. for example, to hold loss absorbing capital make financial institutions more resilient in the face of unexpected losses. such requirements take on a macro prudential dimension when they are most stringent for the largest, most systemically important firms, thereby minimizing the risks that losses at such firms will reverberate throughout the financial system. resilience against runs can be enhanced by stronger capital positions and requirements for sufficient liquidity buffers among the most interconnected firms. an effective resolution regime can also enhance resilience by

better protecting the financial system from contagion in the event of a siffy collapse. further, the stability of the financial system can be enhanced through measures that address interconnectedness between financial firms such as margin and central clearing requirements for derivatives transactions. finally, a regulatory umbrella wide enough to cover previous gaps in the regulation and supervision of systemically important firms and markets, can help prevent risks from mi migrating to areas where they're difficult to address. in the united states considerable progress has been made on each of these fronts. changes in bank capital regulations which will include a surcharge for systemically important institutions, have significantly increased requirements for loss absorbing

capital at the largest banking firms. the federal reserve stress test and comprehensive analysis and review process require that the large financial institutions maintain sufficient capital to weather severe shocks, in that they demonstrate their internal capital planning processes are effective, while providing perspective on the loss absorbing capacity across a large swath of the financial system. the bozel 3 framework includes liquidity requirements designed to mitigate excessive reliance by global banks on short-term wholesale funding. oversight of the u.s. shadow banking system has also been strengthened. the new financial stability oversight council has designated some non-bank financial firms as systemically important institutions that are subject to

consolidated supervision by the federal reserve. in addition, measures are being undertaken to address some of the potential sources of instability in short-term, wholesale funding markets, including reforms to triparty repoe market, and money market mutual funds. although progress in these areas has, at times, been frustratingly slow. additional measures should be taken to address residual risks in the short-term wholesale funding markets. some of these measures, such as requiring firms to hold larger amounts of capital, stable funding, or highly liquid assets based on use of short-term wholesale funding would likely apply only to the largest, most complex organizations. other measures, such as minimum margin requirements for repurchase agreements and other

securities financing transactions, could at least in principle, apply on a market wide basis. to the extent that minimum margin requirements lead to more conservative margin levels during normal and exuberant times, they could help avoid potentially destabilizing procyclical margin increases in short-term wholesale funding markets during times of stress. at this point, it should be clear that i think efforts to build resilience in the financial sector are critical to minimizing the chance of financial instability and the potential damage from it. this focus on resilience differs from much of the public discussion. concerns whether some particular asset class is experiencing a bubble and whether policy makers should attempt to pop the

bubble. because the resilient financial system with withstand unexpected developments, identification of bubbles is less critical. nonetheless, some macro prudential tools can be adjusted in a manner that may further enhance resilience as risks emerge. in addition, macro prudential tools can, in some cases, be targeted at areas was concern. for example, the new bozel 3 regulatory capital framework includes countercyclical capital buffer, which may help build additional loss-absorbing capacity within the financial sector during periods of rapid credit creation, while also leaning against emerging excesses. the stress tests include a scenario design process in which the macro economic stresses in

the scenario become more severe during buoyant economic expansions and they incorporate the possibility of highlighting salient risk scenarios, both of which may contribute to increasing resilience during periods in which risks are rising. similarly, minimum margin requirements for securities financing transactions could potentially vary on a counter cyclical basis so that they're higher in normal times than in times of stress. in light of the considerable efforts under way to implement a macro prudential approach to enhance financial stability and the increased focus of policy makers on monitoring emerging financial stability risks, i see three key principles that should guide the interaction of monetary policy and macro prudential policy in the united

states. first, it's critical for regulators to complete their efforts at implementing a macro prudential approach to enhance resilience between the financial system, which will minimize the likelihood that monetary policy will need to focus on financial stability issues, rather than on price stability and full employment. key steps along this path include completion of the transition to full implementation of bozl 3, including new liquidity requirements, enhanced standards, for systemical allal and tighter prudential buffers for firms heavily reliant on short-term wholesale funding. expansion of the regulatory umbrella to incorporate all systemically important firms, the institution of an effective

cross-border resolution regime for systemically important financial institutions, and consideration of regulations such as minimum margin requirements for securities financing transactions, to limit leverage in sectors beyond the banking sector in siffys. second, policy makers must carefully monitor evolving risk to the financial system and be realistic about the ability of macro prudential tools to influence these developments. the limitations of macro prudential policies reflect the potential for risks to emerge outside sectors subject to regulation. the potential for supervision and regulation to miss emerging risks, the uncertain efficacy of new macro prudential tools, such as counter cyclical capital buffer, and the potential for such policy steps to be delayed,

or to lack public support. given such limitations, adjustments in monetary policy may at times be needed to curb risks to financial stability. these first two principles will be more effective in helping to address financial stability risks when the public understands how monetary policy makers are weighing such risks in the setting of monetary policy. because these issues are both new and complex, there is no simple rule that can prescribe, even in a general sense, how monetary policy should adjust in response to shifts in the outlook for financial stability. as a result, policy makers should clearly and consistently communicate their views on the stability of the financial system and how those views are

influencing the stance of monetary policy. to that end, i'll briefly lay out my current assessment of financial stability risks and their relevance at this time to the stance of monetary policy in the united states. in recent years, accommodative monetary policy has contributed to low interest rates, a flat-yield curve, improved financial conditions more broadly and a stronger labor market. these effects have contributed to balance sheet repair among households, improved financial conditions among businesses, enhanced the strengthening of the health of the financial sector. moreover, the improvements in household and business balance sheets have been accompanied by the increased safety of the financial sector associated with the macro prudential efforts i've outlined. overall, non-financial credit growth remains moderate. while leverage in the financial

system on balance is much reduced. reliance on short-term wholesale funding funding is also significantly lower than immediately before the crisis. although important structural vulnerabilities remain in short term funding markets. taking all of these factors into condition, i do not presently see a feed or monetary policy to deviate from a primary focus

may under appreciate the potential for losses and volatility going forward. in addition, terms and conditions in the leverage loan market which provides credit to lower rated companies have eased significantly reported rily as a result for reef for yield. the federal resever, the office of the controller of the currency and the federal deposit corporations issued guidance regarding leverage lending practices in 2013 and followed up on this guidance late last yearment to date, we do not see a systemic threat from leverage lending since broad measures of credit outstanding do not suggest that nonfinancial borrows in the aggregate are

taking on excessive debt and the improved capitol and liquidity should ensure resilience of potential losses due to their exposures. though we are mindful that it could accelerate. borerers could rise unexpectedly and leverage of liquidity in the financial system could deteriora deteriorate. it is important that we monitor the degree that the steps we've taken have built resilience as conditions change in potentially upexpected ways.

these changes have also had a significant effect on our monetary policy discussions. an important contributor to the progress made in the united states has been the lessons we learned from the experienced gain by central banks and regulatory authorities all around the world. the imf plays an important roll role in this process as a form of representatives from the world's economies and as a institution charged with with promoting stability globally. i expect to contribute to and learn from ongoing discussions on these issues. thank you very much. [ applause ]

oh, my goodness, madam chair woman you have impressed us with a rich, dense, very informative and candid read of the occurrence situation and how monetary and mock row prudential tools could be used in sequence, parallel parallel. different circumstance. i would like to stay loyal to our man today. what would you say? would you say that is mack re

prudential fails our monetary policy or would you say is that depending on circumstances, macro prudential tools have to deal with it as the first line of defense. >> i think my first thing here today is that macro prudential policy should be the main line of defense and i think the efforts that we're engaged in in the united states but all countries coordinating through bossel, through the financial stability boards. the efforts that we are taking to strengthen the resilience of the system. more capital, higher quality capital. higher liquidity buffers. stronger arrangements for central clearing of derivatives

that reduce interconnectiveness among systemically importance financial institutions. strengthening of the arc te architectures and payment system. all of these efforts. particularly focusing on the systemically most important firms through higher leverage ratios. i see this as the core step that we need to take in the united states and globally to create a safer and found r sounder financial system. if we're able to do that, reducing also the relielance on whole sale funding. if the system does experience

shocks, it will be better able to deal with it. i would also put resolution planning which we're engaging in actively as among those measures. i think cyclical policy and sector specific policies that we're seeing many emerging markets take. steps that can be used particularly when we see problems in housing or a particular sector. these are really promises. i think we yet understand how they work when they can be effective. how we should use them. i hope this will be an area and the ifm with active research so question better deploy those tools. i think importantly not taking monetary totally off the table

as a measure to be used when financial sifting her developing. i think we have to recognize that michad monetary policy doet need to be adjusted or leaned against the wind. to me it's not a first line of defense but it is something that has to be actively in the mix. >> if you're using your first line of defense, do you think that this is likely -- not now but sort of in more calm possibly and more medium term times. would that help us get away from zero lower bond environment in which monetary policy is a bit stuck but whether it's here or it is in the uk or in the euro

area. we are all faced of issue. the exploring the negative interest rates is the case now by the cb. do you believe that the tools are likely to move us out of the direction. it is rooremarkable how many countries are that have been effected. often it has been the case that these episodes have occurred in the aftermath of a crisis that impacted the financial system. i think it will be helpful that we can strengthen the financial system. such huge adverse shocks are less likely.

it is a real possibility. for example, the work that we've done with the standard of micro economic mod tells we use inside the reserve. looking at the incidents of shocks that have occurred. there remains a real possibility that we could be hit by the zero lower bound. recently we've had many discussions of secular or whether demographic trends that so called equilibrium real interest rates may be at a lower level than we've seen historically. that's one of the factors that i think will be important in determining how frequently and naked of shock could push

economies against the zero lower bound. if it is correct that equilibrium rates in the united states and globally may be lower going forward than they have been historically. i think we will have to worry about these episodes more often. of course, often there are other tools besides monetary poll 60 mime monetary policy has bore the brunt of responding. i think if greaters had more fiscal scope than there would be a large tool kit to respond to the zero lower bound. >> it seems to include nor structural bands although the situation is improving slightly.

on the tendential interest rates. research has been done to the one you're alluding to and points to that direction as well. >> let me take you one circle further, you've beautifully demonstrated the efforts that have been undertaken from a macro prudential view. this universe being restrictive and well supervised as it is how generated the creation of parallel universes. i'm just thinking of huge janet with the tool box with all the adrib attribute that's you have, what can you do about thatted oi .

there have been development of funding mechanisms outside the realm of central bakernkers. what can be done about them in order to make sure there's no creation of significant threats that are out there that are not covered by macro prudential tools? >> i think you're pointing to something that is an enormous challenge. we simply have to expect that when we draw regulatory boundaries and supervise intensely within them that there is the prospect that activities will move outside those boundaries and we won't be able to detect them and if we can we don't have adequate regulatory tools. that will be a huge challenge to which i don't have an answer a.

as we think about that. i think it is particularly useful to focus on those that they have the potential to control risks, not only among regulated institutions but also more broadly. that's when reason in the speech i gave i messenger margin requirements that can serve to limit leverage not only within the banking system but more broadly by any institution that would be borrowing short term to take on institutions. this might have more universal

effect. i tell you also, we have developed as many as you have, as many central banks have very active monitoring programs to try to be on the look out for what will cause the next crisis. hopefully many, many years in the future. >> we will both be retired by those. >> i certainly hope so. >> what are the new threats. we're trying to look for those and particularly to look outside the regulatory perimeter to see where threats are emerging but this is a real challenge, i think, for all of us. >> we share exactly the same concern. we look at the horizon and we know where -- what could be the traditional risks bases on history but what i'm obsessed about is what do we not know from history that will arise and will be the risk of tomorrow.

>> i think we have a much more active program of monitoring for those risks than we did before at the kies is. >> you have taken examples of canada, switzerland and a few other countries, i'd be remiss in the to address the issue of spill overs. we are a institution that is concerned by 188 countries. they are the members. we are doing as much research as we can to identify the spill over it's from monetary policies sf . we have seen a strong ep episod. i know it is not directly in your mandate to worry about them. it is mine. we compare our notes on a friendly basis.

how do you perceive them? how do you integrate them in your way of thinking? are you attentive as well so to wh what we are working on which is the study of the spill backs from the spill over. for those not so in tune with the spill/spill business. it is the understanding of decisions made outside. the spill backs is the consequences of the spill overs as they bounce back to the demede domestic markets where the decisions were originally made. i'm sure you pay attention to it. >> we certainly do pay tension to spill overs. although the fed -- this is true of most central banks, the mandate that's we're given by congress or the relevant

legislatures tend to focus on domestic goals. we certainly strive to avoid generating spill overs when we use monetary policy. of course we are very much effected by the global environment. the spill backs which you refer are central in our analysis of our own economy and what the impact of our policies would be. i think if you look us monetary policy generally, given -- of course there are spill overs. in global financial markets that -- where capitol flows are as large as they are in the global economy today and financial markets that are so interconnected. of course there are spill overs and no denying that. i think when you've seen

significant impacts so emerging market economies from i think most studies, hours and other researchers would suggest that there's many factors that are causing it in which movements in global interest rates would be only one. so for example, when we instituted qe two which generated in that period after that, there were capitol inflows into many emerging markets. there were other factors. stronger growth in the emerging markets were an important factor and shifts in risk attitudes among globally that are not necessarily driven by monetary policy. i guess the other point i would make is that the studies that we

have done, i believe this with would be consistent with the imf's analysis. when the united states is as important as they are in the global economy, when we adopt policies in pursuit of price stability and full employment. given our importance as a purchaser of goods from other countries, generally, these are not bigger than your neighbor policies. we are effecting foreign countries by pushing down by can expansionary policy our exchange rate to their detriment. when our economy expands, we buy more. on balance, i think the spill overs. they are typically positive. you did refer spes cifically to the episode a year ago. before there had been necessity real change in monetary policy but a shift in communications

about future monetary policy. a very pronounce iffed jump in interest rates. i think they were tip typically emerging mark echts with greater vul n which caused those countries to tight en monetary policy. >> just to give you an example because michelle bashley was here exactly where you are now. she said at that time the currency of chile went up 30%. it had a immediate strong effect on those countries. new zealand is another point in case. >> i think in there what was happening is that traders had built up positions that were premised on unrealistic expectations about interest rate

paths and about the appropriate level of volatility. it wasn't just a shift in monetary policy but a rapid unwinding of leverage positions that had build up that caused that damage. i've pledged often and we will continue to try to conduct our monetary policy to communicate about it and to conduct it in the manner that is understandable to financial markets to avoid the kind of surprises that could cause jumps in interest rates that cause such capitol flows. you know, to some extent -- to some extent i think such spill overs are relly unavoidable of global capitol markets.

my own assessment is that most emerging in e market has have stronger systems. >> because they went through the crisis with the support of her an her team that they felt a lot stronger afterwards . all the things that were put in place the kinds of shocks that we may see as spill overs as hopefully the global economy covers and we are in a position to tighten upon monetary policy. we will do everything on our side to make sure it goes smoothly. >> thank you so much for the support. i'm sure they are particularly

interested in your views as to how you can best communicate and they can best anticipate how to limit the volatility risks that arises interest that. >> i will ask you a final question before we're off because i know we are pressed for time. michelle referred to napoleon who said that the central bank should be independent but not too much. with that enlarged responsibility -- >> well purposely i changed a little bit. monetary policy, macro prudential tools that should be used for financial stability, are you independent? >> well, i think we are independent and appropriately so in the conduct of monetary

policy. congress established the goals we are to pursue. i think had true in most countries that there's no goal independence but there is independence on how to carry out monetary policy. there's an awful lot of research that macro economic outcomes are better when central banks have the ability to decide how to use their tools. they have to explain them. they have to be accountable to congress. i think that is very important sometimes when central banks take on financial stability mandates it becomes harder. i don't think independence is appropriate in absolutely every sphere of conduct central banks become involved in. i think it's really the conduct

is what's really important. we had had the experience during the crisis of putting in place a very large number of liquidity programs. when banks become involved in lender last resort activities for example the lines between what a central bank should do and what's the responsibility of government can become blurred. >> right. >> and, you know, these are times when i think the activities of central banks can become quite controversial. one of the things that we it during the crisis to try to clarify what's the dividing line a central bank shouldn't be dragged over and if it is the fiscal authority should clearly be taking responsibility. we actually had a kind of accord with the treasury that was

signed. they kind of interested we may use our balance sheet to lend but to the extent we do is the responsibility of the government. once cooperation become very natural, the lines do get blurred and there is a potential threat to central bank independence but i think it is important. >> from a monetary policy there is complete independence. >> at least tool independence. >> well, chairman yellen, as a token of our appreciation, i would like to hand over a book that celebrates the story of the imf plus one day because the anniversary was yesterday at the beginning of the imf. you've been a terrific speaker

in this. thank you so much. >> thank you so much. [ applause ] >> on the next washington journal, we'll look at some of

the key issues before congress, including immigration. with grofre northkwift president of tax reform. we will take your questions about recent supreme court rulings regarding abortion and contraception and we will look at global oil production and a report the u.s. has surpassed saudi arabia and russia as the world's largest oil roe deucer. >> the washington journal is live on cspan everyday and you can join the conversation on facebook and twitter. facebook. >> now you can keep in touch with current events using any phone any time on cspan call to hear congressional coverage, public affairs programs and everyday listen to a recap of the day's events at 5:00 eastern

on washington today. you can also hear audio of the five public affair programs beginning sunday noon. call 202-626-8888. long distance or phone charges may apply. >> according to the head of the national institutes the health, a lack of funding is hurting the ability to cure diseases. dr. francis clins was on epoint. >> thanks for coming on time. i'm fred upton. welcome to the first of what will be a number of round tables of our 21st century cure's initiative. a collaborative, bepartisan

effort to names to accelerate the pace of cures of medical break-throughs in the united states. as my colleague in the video that we released last week, as part of this bipartisan initiative, we are going to spend the next number of months, 6, 9, whatever to review the fulling arc that determine what steps we need as a nation to accelerate new treatments and make sure we keep america as the innovation capitol of the world. we cannot do it alone we need the support of those here today and watching online. we are going to hold round tables in washington and perhaps around the country as well. we will solicit feed back from experts in here.

we need a lot of answers and we need to listen. no idea is to too big. no idea is auto small. the only way we will akblish our goal is if work to cover this conversation. we hope to hear from you during this process. for those of you who are waufinwaufin watching you can mail it to cures@white house.gov. >> we're lucky to have joined by some of the nation's greatest thought leaders in medical innovation. dr. francis collins, dr. janet wooddock, dr. jeff shurner, dr.

james whilsce. dr. jill gray. dr. andrew veneschenbauk. marri margaret anderson, dr. peter uber, dr. ellen seagull. >> sara dupray, jonathan lef partner and chairman of the deer field institute. thanks for being with us today. to get the most out of everyone i'd like to keep my remashes short. i would like to get my cochair on this effort to say a few words.