The advantages of simple rules for decision-making are that they are easy to explain which can be especially important when establishing credibility for a low-inflation regime. With simple rules for action, it becomes clear what has guided monetary policy decisions. However, as I have shown, this does not necessarily result in optimal policy in every situation in the sense that macroeconomic stability and longer-term price stability are achieved. The difficulties in assessing when demand and the increase in lending are too strong are certainly considerable although this applies by and large to all the assessments we have to make. 5  BIS Review 48/2000
1 Indeed, international difference in living standards has declined over the latter half of the  1  Parente and Prescott (1999) documents the evolution of international income and growth differences and gives a list of growth facts before and after the industrial revolution. BIS Review 99/2007  1  twentieth century as a result of emerging markets’ fast-pace and sustained growth. During the past 20 years, the world’s income gap has narrowed even faster. It cannot be by sheer coincidence that this period has also witnessed growing international trade and financial integration and the entrance of China, and subsequently India, into the comity of trading nations. Along these high growth trajectories, emerging markets’ aggregate real income and consumption are an order of magnitude more volatile than advanced economies (both in terms of levels and growth rates). Not only is consumption more volatile in emerging markets, but it is also more volatile in relation to income. In fact, over the business cycle, consumption is around 40 percent more volatile than income for emerging markets, while it is less volatile than income for advanced economies. The unique volatility outcomes can be attributed to a distinct set of macroeconomic shocks which are specific to emerging markets or their propagation mechanism, or both. 2 I think that the extraordinary volatility in real aggregate consumption and income can be partially attributed to episodes of financial instability that occur not infrequently in emerging markets.