Remember Statler and Waldorf, the Muppet characters who heckled performers from their balcony seats? In one of my favourite sketches as a child, the duo talk themselves into a full circle: initially praising a performance, only to pan it before praising it again.

This round trip is reminiscent of the decoupling versus recoupling debate and it risks obfuscating issues that are consequential for both investors and policymakers. Specifically, while decoupling is a reality, the international dimensions are much more nuanced than suggested by traditional analyses. As a result, investment and policy implications are skewed.

The decoupling camp was firmly in control in the run-up to the “sudden stop” experienced by the global economy in the last 3? months of 2008. Emerging market (EM) growth was buoyant, and self-insurance (in the form of large, growing reserve cushions) insulated many of them from the disruptions experienced by the US financial sector. As a result, market consensus increasingly viewed emerging economies as the growth locomotive for a world looking to reduce its dependence on highly indebted US consumers.