financial sector will go a long way toward making emes more robust to a wide range of shocks, not just those that may arise from changes in monetary policy in the advanced economies. global investors should also learn from the experience of this summer, when it became clear that unwinding leveraged carry trades can be difficult in an environment of lower liquidity. as for advanced economies, policymakers should move gradually to restore normal policies only as their economic recoveries are more firmly established, consistent with their mandates. in addition, policymakers should communicate as clearly as possible about their policy aims and intentions in order to limit the odds of policy surprises and a consequent sharp adjustment in financial markets in response. indeed, my colleagues on the fomc and i are committed to just such an approach. in closing, the federal reserve ’ s mandate, like those of other central banks, is focused on the pursuit of domestic policy objectives. this focus is entirely appropriate. yet, experience has shown that the fortunes of the u. s. economy are deeply intertwined with those of the rest of the world. economic prospects for the united states are importantly influenced by the course of the world economy, and, by the same token, prosperity around the globe depends to a significant extent on a strong u. s. economy. in order for the federal reserve to fulfill its dual mandate of price stability and maximum employment, we must take account of these international linkages. indeed, the federal reserve has a long and varied history of doing so, including our actions during the global financial crisis. there is every reason to expect that to continue. 14 thank you. i ’ ll be happy to take a few questions or comments. see sanchez ( 2013 ). see eichengreen ( 2013 ). bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches references ahmed, shaghil, and andrei zlate ( 2013 ). “ capital flows to emerging market economies : a brave new world? ( pdf ) ” international finance discussion papers 1081. washington : board of governors of the federal reserve system, june. bernanke, ben s. ( 2013 ). “ monetary policy and the global economy ”, speech delivered at the department of economics and sticerd ( suntory and toyota international centres for economics and related disciplines ) public discussion in association with the bank of england, london school of economics, london, march

##s over recent decades ; growth differentials may partly be reflecting these improvements. as is evident in the right - hand chart, the relationship between the growth differential and capital inflows to emes seems to be quite strong. in particular, the rise in capital flows following the global financial crisis coincided with stronger relative growth performance in emes. and in 2011, capital inflows diminished along with the growth differential. another key driver of eme capital flows is global attitude toward risk. swings in sentiment between “ risk - on ” and “ risk - off ” have led investors to reposition across asset classes, resulting in corresponding movements in capital flows. 8 indeed, as shown in chart 3, the most common measure of uncertainty and the market price of volatility – the vix – is strongly correlated with net inflows into emes. although the causes of movements in global risk sentiment are uncertain, the ebb and flow of potential crises and policy responses, such as we experienced during the european crisis, are clearly important. of course, movements in risk sentiment may not be fully independent of monetary policy. an interesting line of research has begun to consider how changes in monetary policy itself may affect risk sentiment. for example, some studies indicate that an easing of u. s. monetary policy tends to lower volatility ( as measured by the vix ), increase leverage of financial intermediaries, and boost eme capital inflows and currencies. 9 see, for example, ahmed and zlate ( 2013 ), bluedorn and others ( 2013 ), fratzcher and others ( 2013 ), ghosh and others ( 2012 ), and imf ( 2011 ). see chen and others ( 2012 ), fratzscher and others ( 2013 ), hausman and wongswan ( 2011 ), imf ( 2013b ), and moore and others ( 2013 ). see ahmed and zlate ( 2013 ), forbes and warnock ( 2012 ), fratzcher and others ( 2013 ), and ghosh and others ( 2012 ). see ahmed and zlate ( 2013 ), bluedorn and others ( 2013 ), forbes and warnock ( 2012 ), and imf ( 2011 ). see bruno and shin ( 2013 ) and rey ( 2013 ). bis central bankers ’ speeches a second point to bear in mind when assessing monetary policy spillovers is that expansionary policies in the advanced economies are not beggar - thy