Capital inflows in perspective After the boom of 2006–2007, and the sharp collapse of 2008 and part of 2009, capital flows to emerging economies have picked up. Investments in stock and fixed-income mutual funds in emerging economies have recovered and in some regions have exceeded pre-crisis levels (figure 1). Corporate bond issuance, which nearly stopped in the fourth quarter of 2008, regained their pre-crisis levels, starting from the second half of 2009 (figure 2). International interbank credit flows also stopped falling by mid-2009, although a significant recovery is yet to be seen (figure 3). This is consistent with the relatively weaker balance sheets of international banks compared with increased investment possibilities of global funds and capital markets. Summing up, with the financial crisis behind us, capital flows have returned to emerging economies, but it is not evident that they currently exceed their pre-crisis levels. Financial asset prices have also reflected this process. In emerging markets, the price-toearnings ratio dropped during the crisis, but is currently back to 2007 levels (figure 4). The real exchange rate fluctuated significantly over the past three years, but it is currently not significantly away from its 2007 levels (figure 5). Short-term interest rate differentials between emerging and industrialized countries have narrowed, since emerging economies also eased their monetary policies (figure 6). This has occurred, after the widening that happened during the crisis, as a result of a faster monetary expansion in the economies that were at the center of the problems, particularly the US.

Jean-Pierre Roth: Central bank communication policies and the challenges posed by the financial crisis Summary of a speech by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank and Chairman of the Board of Directors of the Bank for International Settlements, at the presentation of the “BZ-Preis für Lokaljournalismus”, Berne, 27 November 2008. The complete speech can be found in French on the Swiss National Bank’s website (www.snb.ch). *  *  *  The financial crisis has prompted a rekindling of press interest in central bank operations, following a long period in which monetary authorities scarcely attracted any media attention. Our communication policy has thus been faced with new challenges in recent months. Today, central banks operate with the market, rather than “against the market”, as in the past. Financial market participants are therefore able to foresee central bank actions. Since the early 2000s, our communication policy has focused on transparency, and our experience with this has been positive. Thus, transparency increases the effectiveness of monetary policy. Yet, in the recent financial turbulence, transparency in monetary policy operations also turned out to be a double-edged sword, as communication problems arose. Indeed, there is a risk that operations to provide extraordinary liquidity assistance will impair the reputation of the recipient organisations, and thereby destabilise the market. There are a number of possible solutions with which a balance can be achieved between transparency and stability. BIS Review 147/2008  1