But, having said that, it would be wrong to conclude that financial globalisation is to be blamed for the financial turmoil as it cannot be considered responsible for the fundamental causes and key weaknesses I identified earlier and which resulted in the associated mispricing of risks and the mismanagement of assets and liabilities by some financial institutions. On the contrary, financial globalisation has contributed, other things being equal, through international risksharing to cushioning the impact of shocks on national financial systems and economies and it has also facilitated the boosting of the capital buffers and the restoration of the balance sheets of banks weakened by the turmoil. Beneficial cooperation between authorities The recent financial market episode has highlighted an important implication of financial integration for central banking: the usefulness of effective cooperation and coordinated action by central banks in managing liquidity and ensuring the efficient functioning of interbank money markets. It has also clearly shown the benefits of closer cooperation and improved information-sharing between financial supervisors and central banks. Such enhanced interaction would contribute to a better assessment of the potential systemic implications of financial shocks, and assist in addressing market tensions or problems faced by individual financial institutions. IV. Globalisation, monetary policy and financial stability  There is one final and important issue I would like to briefly consider: the interrelation between globalisation, monetary policy and financial stability.
So far, however, there is simply not as much historical evidence availab le about the impact of QT, because we have observed more episodes of balance sheet expansion than of balance sheet contraction. A number of considerations support a prudent approach, since the response to QT could be stronger than the response to QE. First, the fiscal landscape has deteriorated in recent years. Public debt to output ratios have climbed sharply since the onset of the pandemic, because governments have run very large deficits over the course of the pandemic and because output has fallen. The current inflation surprise somewhat reduces the real value of this debt, but this effect is small compared with the strong increase in debt levels since the pandemic began. The greater the amount of debt that private markets must absorb, the lower the liquidity in sovereign debt markets and the higher the yields that markets will demand in order to equate supply with demand. Accordingly, this factor tends to magnify the impact of quantitative tightening on the term premium11. Second, the impact of balance sheet policies may also vary depending on liquidity conditions. In QE times, more liquidity injected into the system did not have a major impact since the market was saturated with excess cash and thus money market conditions were rather insensitive to additional liquidity injections.