Globalisation and monetary policy While considerations relating to maximising output and employment weigh as much upon monetary authorities as maintaining price stability, particularly in the developing countries, domestic inflation has increasingly become less sensitive to the domestic output gap and potentially more sensitive to the world output gap.
It is, therefore, necessary for each country to take a holistic approach to the trinity of free flows of capital, freely floating exchange rates and independent monetary policy. At a practical policy level, the trinity can be regarded as implausible and difficult, but manageable through intermediate solutions that adapt to the country-specific situations.