remarks by mr. javier guzman calafell, deputy governor at the banco de mexico, on “ monetary policy amid volatile capital flows ”. scotiabank global central bank & public institutions conference. miami, april 6th, 2017. 1 first of all let me say that i am very glad to participate in this conference. my sincere thanks to scotiabank and especially to alejandro garcia for the invitation. the implementation of monetary policy under volatile capital flows has for long been a challenging issue for emerging market economies ( emes ). naturally, with globalization and the consequent increased integration of the world economy, the difficulties have become more acute. as is well known, the combination of a number of factors, including domestic financial liberalization, a widespread removal of cross - border controls, and the development of financial technology, has brought about a dramatic expansion of international financial transactions in recent decades. but the complexities of these trends have been substantially accentuated as a result of the global financial crisis. the pressures resulting from the crisis forced the central banks of many advanced economies ( aes ) to reduce shortterm interest rates to very low, even negative levels, which resulted in turn in historically low figures for long - term rates. this led to an aggressive search for yield and a boost to capital flows towards emes, giving as a result macroeconomic and financial stability challenges for these countries. the opinions and views expressed in this document are the sole responsibility of the author and do not necessarily represent the institutional position of the banco de mexico or of its board of governors as a whole. subsequently, as the situation has begun to improve in the aes, and especially in the united states, emes have faced the need to cope with the opposite challenge, i. e. a tightening of external financial conditions and episodes of capital outflows, although in a context of wide swings, with the corresponding stresses on domestic and external stability. the situation has been further complicated by divergent monetary positions among the main aes and by periodic bursts of turbulence. naturally, the challenges deriving from the global financial crisis do not end here. on the one hand, it has had long - term effects on the world economy, including a lower rate of potential growth, a decline in commodity prices, and a substantial increase in global uncertainty, among others, that have significantly deteriorated the external environment faced by emes. on the other hand, the costs that have accompanied the crisis have underpinned a backlash against globalization, which is threatening

##6 - 968. however, it is important to emphasize that the design and implementation of structural reforms face a number of challenges. first, as the international experience evidences, efforts in this direction are often undertaken within the context of episodes of severe economic distress, with the risk of higher implementation costs, of a less carefully planned set of reform measures, and of turning what should be regarded as a strategic action into a desperate search for immediate relief. a second complication arises from the multiplicity of idiosyncratic factors that must be taken into account to maximize the potential of reform success on a case - by - case basis, such as the stage of development and institutional setup of the subject economy ; the careful identification of a sensible order of priorities, sequencing and intensity of reforms ; and the nonlinearities, interactions and complementarities that may exist among them. third, the adequate implementation of structural reform faces important difficulties of its own. among these, the required political support may prove elusive and costly to achieve, while the possibility of implementation mistakes affecting the beneficial impact of the reform effort cannot be disregarded. lastly, in addition to being feasible, structural reform must also be sustainable in the long - term, which in turn requires a strong and broad sense of ownership by the societies implementing them, aided too by a balanced mix of short - and long - term benefits. trade policy represents another key component of the policy toolkit nowadays. in my opinion, a crucial issue here is to keep in mind that openness to trade flows has unquestionable advantages. in addition to the benefits arising from greater competition and the reallocation of resources across sectors on efficiency, technological development and innovation, the wider variety and better quality of raw and intermediate inputs available to domestic producers at a lower cost also constitutes an important channel through which significant productivity and output gains can be obtained. motivated by these and other beneficial effects, important strides towards trade liberalization have been made at a global scale. however, the pace of progress in this direction seems to have declined, and there remains an ample margin for further trade liberalization. according to recent estimations by the oecd, 8 a broad - based convergence of trade policy towards a stance such as the one currently observed in some of the most open economies would yield, over the long term, a world trade intensity ( that is, the sum of world imports and exports as share of gdp ) about 22 percentage points higher than in a baseline scenario in which protectionism remains