, global risk aversion has remained relatively tame since 2010. third, individual characteristics of different countries contribute to explaining why capital inflows have not been equal in all emerging economies. in particular, mexico ’ s attractiveness could involve factors such as the openness of the capital account, the free - floating exchange rate regime, the certainty of no discretionary intervention in the markets, moderate country risk, and positive prospects for structural reforms. 3 during the last few weeks, sentiment has changed in global financial markets. favorable u. s. economic data and various federal reserve officials ’ statements have fueled market and analysts ’ expectations for an imminent start to the tapering of quantitative easing in the united states. hence, the april employment report published in may approximately coincided with the beginning of a rising trend in long - term government bond rates in the united states and other nations. at the same time, the u. s. dollar has been appreciating with respect to many currencies. economic growth expectations for mexico in 2013 dropped from 3. 6 to 3. 0 percent between january and may 2013, while those for 2014 have remained at 4. 0 percent during the same period. see banco de mexico ( 2013 ), survey of private - sector economic analysts ’ expectations, may. two empirical analyses of factors that explain capital flows, including idiosyncratic factors, are ghosh, a. r., et al. ( 2012 ), “ surges, ” imf working paper, wp / 12 / 22, january ; and fratzscher, m. ( 2011 ), “ capital flows, push versus pull factors and the global financial crisis, ” ecb working paper series, no. 1364, july. bis central bankers ’ speeches the resulting volatility in global financial markets has brought about considerable increases in mexican government bond yields. for some maturities, the upward shift in the yield curve has offset the downward shifts seen in the first four months of the year. like other emergingmarket currencies, the peso has been depreciating against the dollar. adjustments in mexico ’ s financial markets have occurred in an orderly way. fx market volumes have continued to be high, bid - ask spreads have remained slim, and foreign holdings of peso - denominated bonds are still near record highs, although portfolio duration has been declining throughout the year. recent global financial volatility is a foretaste of what could happen when the process of u

) : “ rethinking macro policy ii : getting granular ”, imf staff discussion note no. 13 / 03, april. expected inflation, interest rates and the exchange rate, 6 it should not come as a surprise that the typical policy response in these countries has sought to favor the rebuilding of fiscal strength even under conditions of weakness in economic activity. 7 in fact, the potentially compensating effects on the latter deriving from the strengthened credibility of the macroeconomic policy framework and the lessened upward pressure on current and expected interest rates further justify this as a sensible course of action. however, the usefulness of fiscal policy measures to counter negative shocks to our economies should not be disregarded, particularly in a context of solidly anchored fiscal accounts. the active implementation of measures directly oriented to the financial sector represent a third fundamental component of a coordinated policy package. in particular, as the experience of the recent and previous episodes demonstrates, a healthy financial system is of paramount importance for the efficient transmission of monetary policy to the rest of the economy. in fact, failure to set in motion the measures needed to reestablish the wellfunctioning of the financial sector in case of disruptions would imply a heavy burden on monetary policy. furthermore, the margins of maneuver for the latter, e. g. the possibility to increase interest rates in the face of inflationary pressures, may be constrained under situations of fragility in the former. see, for instance, sargent, thomas, noah williams and tao zha ( 2009 ) : “ the conquest of south american inflation ”, journal of political economy vol. 117 ( 2 ) : 211 - 256, april ; bianchi, franceso and cosmin ilut ( 2017 ) : “ monetary / fiscal policy mix and agents ’ beliefs ”, review of economic dynamics vol. 26 : 113 - 139, october ; and woodford, michael ( 2001 ) : “ fiscal requirements for price stability ”, journal of money, credit and banking vol. 33 ( 3 ) : 669 - 728, august. see vegh, carlos, luis morano, diego friedheim and diego rojas ( 2017 ) : “ between a rock and a hard place : the monetary policy dilemma in latin america and the caribbean ”, world bank lac semiannual report, october. on the other hand, the build - up of financial imbalances and vulnerabilities that might ensue following a relaxation of the monetary