upside risks for the future trajectory of the federal funds rate in previous months led to outward pressures stronger than formerly anticipated. in fact, more than 40 percent of the estimated outflows from emes in the year through the third quarter of 2018 that can be attributed to external factors was explained by increased market expectations about the federal reserve policy rate. 3 it is worth to highlight that global financial conditions remain accommodative in relation to historical standards, albeit tighter than a year ago. there are many factors at play behind such an outcome and their interrelationships are complex. however, two stand out in this respect. first, the tightening bias at the global level that may derive from interest rate increases by the us federal reserve is, at least partially, countered by the persistent degree of accommodation pursued by the central banks of other major aes, in what has turned out to be a divergent monetary normalization cycle in these countries. international monetary fund ( 2018 ) : global financial stability report, october. secondly, in the united states, domestic financial conditions actually loosened even as the monetary policy rate started to increase in december 2015 and the federal reserve began unwinding its balance sheet in october 2017. in fact, financial conditions in that country started to tighten only around the beginning of 2018. needless to say, such an outcome runs counter to intuition. however, it is important to bear in mind that an economy ’ s financial conditions, broadly defined, are the result of the interplay of a large number of variables whose impact may work in opposing directions. in the particular case of the united states, the strengthening of the short - term growth outlook, resulting partly from the fiscal stimulus underway, may have raised expected corporate profits and thus supported asset prices through most of the run - up to the sharp market corrections of recent. this effect was likely reinforced by the crossborder impact of large - scale asset purchases by central banks in europe and japan, hence stimulating demand for higher - yielding us securities. furthermore, the tightening effects of monetary policy actions in the us may have been hindered by a gradual and in general predictable pace of increase in interest rates in that country. in view of the difficulties inherent to trying to predict market movements, even more so in the context of unprecedented circumstances such as the ones prevailing at present, it is not at all clear how rapidly global financial conditions will tighten as the federal reserve and other major central banks continue ( or embark in ) their respective policy normalization cycles.

alejandro diaz de leon : remarks at a panel discussion on monetary policy challenges for emerging markets remarks by mr alejandro diaz de leon, governor of bank of mexico, at the s & p global ratings global emerging markets virtual conference 2021, central banks panel discussion : monetary policy challenges for emerging markets, 1 july 2021. * * * i. lessons learned by economic policy makers in emes from the pandemic the covid - 19 pandemic has been a human and economic crisis like no other. the novelty of covid - 19 and the tremendous uncertainty around the evolution of the pandemic made this crisis unique on several dimensions. it posed new challenges for policy makers, as we dealt with acute and persistent volatility in our financial markets. a deep economic contraction with a subsequent heterogeneous economic recovery, and currently with a high degree of uncertainty on inflation dynamics. our economic models and analytical tools were not designed to analyze crises like the present one, whose origin lies in a public health problem and not in the economic or financial cycle. in what follows, i would like to list several lessons along these lines. as central bankers, the first lesson was to address the financial shock and risk aversion spiral in a timely and decisively matter, to prevent a financial crisis. the financial shock hit during the first weeks of the pandemic, and it was necessary to adopt measures to restore an orderly functioning of financial markets. it is important to remember that, since their creation, central banks have had the responsibility of safeguarding the stability of the financial system. in their role as lenders of last resort, central banks have historically focused on providing liquidity to commercial banks. however, the development of increasingly complex and interconnected financial markets has posed new challenges for central banks. we had to design our policy response taking into account the new realities of our financial systems. this time the resilience of domestic financial sectors to adverse shocks, along with the liquidity provided by systemically important central banks, proved to be very important to stabilize international financial markets. in the case of mexico, the governing board embarked on a series of interest rate cuts and implemented a series of measures to provide ample liquidity ( up to 3. 3 % of gdp ), within its legal mandate in order to foster an orderly functioning of domestic markets and strengthen the economy ’ s credit channels. all measures were intended to set the conditions so that financial intermediaries could fulfill their primary function of providing financing to the economy