is prone to decline. in these circumstances, the virtuous cycle of growth in production, income, and spending will not operate properly. therefore, until balance - sheet adjustments are completed, it is likely that growth in advanced economies will be constrained and that they will remain prone to weakness. the second uncertainty concerns whether emerging economies, which continue to grow at high rates, will be able to make a soft landing onto a sustainable growth path. at present, many emerging economies have been shifting away from accommodative monetary policies. while these moves will put downward pressure on emerging economies in the short run, if implemented appropriately, they could provide a boon to the global economy in that they restrain economic overheating and help achieving more sustainable growth. additionally, a third uncertainty that can be pointed out is that the large difference in the pace of economic recovery between advanced and emerging economies further complicates the mechanism of the emergence and spread of possible risks. the united states and european advanced economies are continuing to conduct very accommodative monetary policies. while the resulting decline in interest rates has helped to support the domestic economies, it has also given rise to capital flows from advanced to emerging economies in search of higher returns. the most fundamental reason for such capital flows is emerging economies ’ high growth, but monetary easing in advanced economies also plays a role. regarding the largescale monetary easing decided by the federal reserve ( fed ) in early november, emerging economies have expressed heightened concern and anxiety about the possible overheating of their economies due to the acceleration of capital inflows and about the possible reversal of capital flows as a result of a policy change in advanced economies in the future. should one or more emerging economies experience a rise and subsequent burst of a bubble, this would not only have a large impact on the emerging economies concerned but also affect the global economy as a whole, including advanced economies. on the other hand, though, there are also various discussions going on concerning the management of exchange rate regimes in emerging economies. there is a possibility that if an emerging economy ’ s exchange rate regime lacks sufficient flexibility and its foreign exchange rate is held too low relative to economic fundamentals, this could, together with the effects of capital inflows from advanced economies, provide excessive stimulus to economic activity in that emerging economy, generating economic and financial excesses and, eventually, a correction of such excesses. these discussions on emerging economies ’ foreign exchange rates remind me of developments in japan ’ s

ruela, treasury market liquidity during the covid - 19 crisis, federal reserve bank of new york liberty street economics, april 17, 2020. for mbs, see jiakai chen, haoyang liu, david rubio, asani sarkar, and zhaogang song, mbs market dysfunctions in the time of covid - 19, federal reserve bank of new york liberty street economics, july 17, 2020 ; and jiakai chen, haoyang liu, david rubio, asani sarkar, and zhaogang song. cash - forward arbitrage and dealer capital in mbs markets : covid - 19 and beyond, federal reserve bank of new york staff reports, no. 933, revised september 2020. 8 for the various new york fed open market desk statements on the expansion of repo operations during march 2020, see repo and reverse repo operations. fomc statements regarding asset purchases at this time include : board of governors of the federal reserve system, federal reserve issues fomc statement, march 15, 2020 ; board of governors of the federal reserve system, federal reserve issues fomc statement, march 23, 2020 ; and board of governors of the federal reserve system, federal reserve announces extensive new measures to support the economy, march 23, 2020. the improvement in treasury market functioning following these actions is discussed in michael fleming, treasury market liquidity and the federal reserve during the covid - 19 pandemic, federal reserve bank of new york liberty street economics, may 29, 2020. in the march 3 / 4 bis central bankers'speeches 23 statements, the fomc also announced it would start to purchase agency commercial mortgage - backed securities ( cmbs ) to smooth market functioning in that market that helps to finance multi - family housing. for more on the deterioration of cmbs market functioning, the fed purchases and their impact on the cmbs market during this period, see woojung park, julia gouny, and haoyang liu, federal reserve agency cmbs purchases, federal reserve bank of new york liberty street economics, july 16, 2020. 9 fsb sets out action to maintain financial stability during covid, july 15, 2020. 10 john c. williams, rising to the challenge : central banking, financial markets, and the pandemic, remarks at the 16th meeting of the financial research advisory committee for the treasury ’ s office of financial research ( via videoconference ) ( july 16, 2020