clearly and transparently as possible to help align expectations and avoid market disruptions. and we will continue to help build resilience in the financial system and support global efforts to do the same. rey ( 2015 ) ; miranda - agrippino and rey ( 2015 ). for example, londono and wilson ( 2018 ) find that u. s. monetary policy variables account for only roughly 10 percent of the six - month ahead forecast error variance of the vix. in fact, in their study, nonu. s. global factors ( non - u. s industrial production, a global economic policy uncertainty index, and the expected probability of recessions outside of the united states ) explain nearly as much of the vix forecast error variance as u. s. monetary policy and other u. s. variables combined. in addition, cerutti, claessens, and rose ( 2017 ) find that directly observed variables in “ center ” countries ( including vix ), as well as unobserved common dynamic factors extracted from actual capital flows, together rarely explain more than one - fourth of the variation in most types of capital flows. - 6references adrian, tobias, daniel stackman, and erik vogt ( 2017 ). “ global price of risk and stabilization policies, ” paper presented at “ eighteenth jacques polak annual research conference : the global financial cycle, ” sponsored by the international monetary fund, washington, november 2 - 3. washington : imf, https : / / www. imf. org / ~ / media / files / conferences / 2017 - annual - researchconference / adrian - s6. ashx. ahmed, shaghil, and andrei zlate ( 2014 ). “ capital flows to emerging market economies : a brave new world? ” journal of international money and finance, vol. 48 ( november ), pp. 221 - 48. bems, rudolfs, luis catao, zsoka koczan, weicheng lian, and marcos poplawskiribeiro ( 2016 ). “ understanding the slowdown in capital flows to emerging markets, ” chapter 2 in world economic outlook : too slow for too long. washington : international monetary fund, april, pp. 63 - 99, https : / / www. imf. org / en / publications / weo / issues / 2016 / 12 / 31 / world - economicoutlook - april - 2016 - too - slow - for - too

the negative feedback loop between the banking sector, sovereign debt and the real economy. there are two dimensions to this feedback loop problem : procyclicality – or the interaction between bank lending and the real economy – and backstop burdens – or the interaction between bank recapitalisation and sovereign debt sustainability. procyclicality is the phenomenon by which banking capital rules exacerbate the business cycle by encouraging lending at a time of growth or contracting it in a time of recession. basel 3 aims to build up a countercyclical buffer to lean against the wind in good times and be eased to help growth in bad times. we are evidently in bad times now, so intriguingly this has prompted some to consider whether you should in fact be starting to release the buffer. indeed, you could probably run the basel countercyclical buffer methodology with some plausible assumptions and get to the conclusion that for many countries we are well past the point where the buffer would be released. the problem, of course, is that the buffer is not in place to be eased and, indeed, that there is still a further strengthening of capital required under basel 3. in addition, market expectations are for more capital faster. where they can, banks are responding by racing to meet the new basel standard well ahead of the five year bis central bankers ’ speeches transitional period. in this respect, what the regulator has given – a transitional period to ease the impact of the new rules – the market has taken away. a fair minded regulator should acknowledge that was a concern identified by industry some time ago. all these considerations led the eba to be very careful in design of the buffer in two respects. we made it clear that in calculating the capital buffer the determination of sovereign debt exposure would be fixed at one point in time, so there was no advantage and therefore incentive to dispose of sovereign debt holdings. and we provided tight guidelines limiting the capacity of banks to meet the capital requirement through deleveraging activity – reducing lending – that would hurt the real economy. we have now seen the banks ’ plans to meet the eba ’ s aggregate €115 billion requirement. the assessment is encouraging, with banks ’ providing a margin for error, with very limited deleveraging planned and with overwhelmingly most of the required minimum met by new capital rather than reduced assets. however, eba will of course monitor developments very closely. where should we go next in terms of policy responses? the european banking regulators ’ room for