Too low a level of interest rates will lead to excessive capital spending; too high a rate will lead to excessive saving. And, in a world where inflationary expectations are remarkably low and stable, it is this second function of rates that is likely to be the more important.Imbalances between savings and investment will potentially reveal themselves in two broad ways External imbalances provide one sign of danger. A country that persistently borrows from abroad will eventually find itself borrowing simply to repay the interest on previous loans, a less than healthy outcome Domestic asset price bubbles provide another sign of danger. This raises a key issue: if central banks have done their job on price stability, why worry about the international implications of that achievement? If all countries have reached their inflation targets, do external imbalances matter?External imbalances tell us something about domestic savings and investment patterns across countries. A country that saves more than it invests will run a current account surplus: it will be exporting capital. A country that invests more than it saves will run a current account deficit: hence it will be a capital importer.

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So, if central banks are concerned about external imbalances, they are also expressing concern about savings and investment behaviour; not necessarily in their own country, of course, but around the world as a whole.This, however, puts central banks in a peculiar position. Why should they be concerned about saving and investment behaviour if their various targets for price stability have been met? The answer lies in the dual role played by interest rates.Interest rates can be manipulated to create equilibrium in the money markets. The Europeans see the Americans as the main culprits, a group of people seemingly addicted to debt in all its various forms (and, from my experience, also addicted to Stephen King jokes). The Chinese see themselves as scapegoats; blamed for imbalances that cannot really be their fault alone (does anyone really think that a revaluation of the renminbi will make all the difference when the dollar's precipitous decline against other currencies has barely dented external imbalances?).All these countries and regions have come close to achieving price stability. Who is to blame, for example, for the growth in the US current account deficit? The Americans argue that the main culprits are the Europeans and the Japanese, who have made poorly judged, domestic economic policy decisions leading to persistently weak demand, and Asian central banks, who have unfairly manipulated their currencies. Stability at the domestic level, for example, has not necessarily been mirrored by stability internationally. more boring needs to be complemented by a collective effort to bring boredom to the international monetary stage." In other words, there are international limits to the influence of national central banks, and of national policymakers more generally.Part of this is an issue about perception.

With weakened unions, greater capital mobility, genuine central bank independence and ageing populations that have no interest in seeing their savings wiped out through inflation, it looks as though the inflationary turbulence of the 1970s and 1980s will become no more than a fading memory.Does this mean that we are living in an era of macroeconomic stability? I doubt it. My occasional trips to the US can sometimes involve strange experiences. Admittedly, it's partly my fault; or, at the very least, my parents' fault It's my name, you see. It's the trigger for many a joke about whether The Shining is better than Carrie, or whether I'm on the verge of finishing my next novel. Remarkably, many of these "comedians"think I've not heard the joke before.