balance of payments data are instructive. on slide 1 you can see that capital flows have indeed been considerable in the past few years. at their peak around the middle of 2016, net capital outflows – measured here in terms of 12 - month moving sums – reached nearly 5 % of euro area gdp. never before in the history of the euro area have capital flows been so high. of course, in the absence of a counterfactual, we do not know how much of this is actually the result of our monetary policy measures. after all, investment decisions reflect a number of factors, including risk perceptions and, importantly, the yield that investors can earn abroad. often, capital flows also simply reflect new investments and savings – just think about the euro area ’ s growing current account surplus – or they can be distorted by tax and regulatory arbitrage. bis central bankers ’ speeches yet, it is striking to see that the turnaround in capital flows from net inflows to net outflows started in mid - 2014, just when we had announced our credit easing package and when expectations were gradually building among market participants that we would also begin purchasing government bonds. slide 1 also tells a second story – that among the various investment opportunities available to investors, virtually all net capital outflows have been concentrated in purchases of foreign long - term debt securities. equity investment, by contrast, has hardly changed in net terms over time. at face value, this suggests one tentative conclusion : large - scale purchases of sovereign bonds encouraged some investors to rebalance their portfolios towards the closest substitute – bonds issued by other sovereigns. this could be described as textbook quantitative easing ( qe ) [ 3 ], not least because these flows likely reflect the impact of our measures on bond prices in the euro area. according to ecb estimates, our monetary policy measures have contributed to reducing euro - area long - term risk - free rates by around 80 basis points since june 2014. as a result, spreads over bonds issued by non - euro area sovereigns have increased notably. for example, towards the end of last year the spread between ten - year us treasuries and equivalent german bunds hit levels above 200 basis points – its highest level since the fall of the berlin wall. on average last year, the spread was around 60 basis points higher than during the six months leading up to the launch of our credit easing package. and the observed spread already reflects the likely impact that increased purchases of

the stronger these effects can be expected to be. this applies not only to the euro area but, as you can see on slide 10, also to japan. it is tempting to think that currency movements related to asset purchase programmes are a direct consequence of their impact on the supply of and demand for currency when investors rebalance their portfolios across borders. the truth, however, is that the direction of causality is much less clear in practice. indeed, a recent deutsche bundesbank study finds that actual purchases under the app have not led to statistically significant euro exchange rate movements. i see two main reasons for this. first, since exchange rates are asset prices that react in real time, they incorporate forwardlooking expectations – most importantly expectations about short - term interest rate differentials. for instance, as you can see on slide 11, since the launch of the app, the eur / usd exchange rate has often closely mirrored two - year interest rate differentials between germany and the united states. [ 17 ] capital flows, by contrast, have tended to respond to interest rate differentials with a delay. in other words, rather than driving exchange rate depreciation, capital flows typically take place after this depreciation has already happened. one reason for this delayed response may be that, during asset purchase announcements, asset managers achieve an immediate change in portfolio weights without active sales or purchases via “ passive ” rebalancing – that is, the change in the exchange rate and asset prices. this disconnect between the exchange rate and capital flows is consistent with the empirical finding that the exchange rate is mostly affected by the signalling channel of monetary policy – that is how policy decisions affect the expected future path of short - term interest rates. ecb research finds that the depreciation of the euro exchange rate in response to the app announcement in january 2015 occurred mainly through this signalling channel, including the added credibility asset purchases provide to that expected path. [ 19 ] the portfolio rebalancing channel, by contrast, played much less of a role. [ 20 ] in this sense, the effect of asset purchases on exchange rates is not fundamentally different from conventional interest rate policy. the second reason to be sceptical about capital flows affecting the exchange rate is linked more to the structure of foreign exchange markets. for example, a large share of euro foreign exchange transactions – 84 % – is initiated outside the euro area, notably in the city of london. bis central bankers ’ speeches as