this in mind. we also need to be careful not to underestimate the consequences of our actions. focusing only on direct channels, the effects that one would expect to ripple back to the united states from problems in one or two emes typically look quite small. but, when all of the indirect channels of feedback are aggregated properly – which admittedly is difficult to do – the effects may be considerably larger. my point is that we tend to underestimate these feedback effects. for most of us, the market volatility of this past spring and summer still remains fresh in our minds. eme financial markets were hit hardest, with declines in equity prices, a widening in sovereign debt spreads, and a sharp increase in foreign exchange rate volatility. in the u. s., we saw a spike in treasury yields, with 10 - year rates rising by roughly 100 basis points from early may to early july, and rising by roughly another 30 basis points before peaking in early september. most commentary has focused on the shift in expectations with respect to u. s. monetary policy – and, in particular, to uncertainty about the timing and implications of fed tapering – as the catalyst for these moves. this focus seems generally right, although other factors also played a role. market participants also had to evaluate the possibility that growth in china and other emes might be slowing even as growth in the u. s. and other advanced economies bis central bankers ’ speeches was picking up. the subsequent market movements as investors withdrew funds from eme investments were an abrupt shock for emes generally, especially after the long earlier period of abundant liquidity and ample inflows. from one perspective, the unconventional nature of recent u. s. monetary policy adds little that is fundamentally new to the challenges now facing emes. these policies simply represent a way of easing, driven by our coming up against the zero lower bound. central bankers have managed differences across countries in cyclical positions and policy stances many times in the past. but, from another perspective, we have less experience operating with unconventional monetary policy and this creates more potential uncertainties. this puts a premium on continued dialogue among central bankers, between central bankers and the market, and keen listening skills on our part. in my view, the fact that our large scale asset purchase programs affect the size of term risk premia globally is important. this set of monetary policies affects financial asset prices in a different way compared to changes in short - term interest

of instability in the short - term mechanism by which deviations of the demand for m3 from its long - term equilibrium are corrected. at present, information from various sources ( balance of payments, financial accounts ) suggest that current developments in the demand for m3 in the euro area seem to be associated with a heightened preference for liquidity induced by an exceptionally prolonged period of asset price volatility. however, it may not be taken for granted that stable money demand will last endlessly. one concern relates to possible future structural changes in the composition of wealth due to the increased sophistication of private investors. historically, instability was primarily due to financial innovation or tax changes affecting the relative net return of holding money. however, there have not been significant changes in any of these factors recently which would justify to expect a continued instability in money demand. the role of money : main conclusions broad money reveals strong leading indicator properties for developments in prices. narrow money aggregates have leading indicator properties for cyclical developments. excess money and credit growth may provide early information for identifying financial imbalances and / or asset price bubbles, which ultimately may impact on price developments. at present, there is no evidence suggesting that the long - run link between money and prices has become obsolete. both conditions motivating the assignment of a prominent role to money, thus, are still satisfied. however, monetary growth has been subject to substantial volatility in the short - run. against this background, the eurosystem will continue with its monetary analysis to interpret short - term trends in monetary aggregates with caution and to conduct studies on money demand. 3. the two - pillar architecture the eurosystem's monetary policy strategy was designed to take account of the uncertainty monetary policy faces about the functioning of the economy. to this end, a twin pillar architecture is employed in organizing, assessing and cross - checking all information relevant for an assessment of the risks to price stability. within the first pillar, the eurosystem has announced a quantitative reference value for the growth rate of m3, as a benchmark against which monetary developments can be assessed and described to the public. analysis under the second pillar focuses on the short - to - medium - term risks to price stability. it is based on a broad range of information about wages, commodity prices and exchange rates, asset prices, wealth, external demand, fiscal policy, and domestic financing conditions and costs. the eurosystem's approach to structuring its analysis under two pillars