in emes ( see recent statements of the reserve bank of india governor ) : the tapering of the fed ’ s asset purchase programme has resulted in massive capital flows into advanced economies and a subsequent sharp rise in interest rates in emerging economies to prevent a sharp devaluation of their currencies ( the currencies of brazil, south africa and turkey were particularly hard - hit ). their large current account deficits are typically financed with short - term portfolio flows and in the case of brazil and south africa, falling commodity prices added further pressure. up to now, there are no clear indications of international portfolio rebalances due to the upcoming interest rate hike by the fed and / or the qe programme currently implemented by the ecb. 4. monetary policy coordination? we have just looked into the negative spillover effects from divergent monetary policies. of course, a central bank ’ s mandate is domestic, but its policy may have global implications. furthermore, in an international macroeconomic environment of subdued and uneven growth and high unemployment, zero lower - bound interest rates and a tight fiscal policy stance, certain nations may attempt to use their monetary policies – through standard or nonstandard measures – in order to influence their exchange rate to bolster their economy and boost employment. the question thus arises whether monetary authorities should act in a coordinated manner during this final stage in the exit from the global crisis and at a time when foreign exchange rates are not an official monetary policy objective in advanced economies. ecb president mario draghi, answering a relevant question in an ecb governing council press conference on 6 february 2014, stressed that international monetary cooperation cannot be ruled out. examples of international monetary policy coordination are not rare, but olivier blanchard captured reality with the caveat : “ it is like the loch ness monster that is much discussed, but rarely seen ” ( 15 december 2013 ). as a matter of fact, a recent notable example of monetary policy coordination among major central banks took place at the onset of the global crisis of 2008, when the world ’ s four leading central banks ( the federal reserve, the ecb, the bank of england and the bank of japan ) took coordinated action, affirming the need to go beyond traditional ways of conducting monetary policy in order to continue to provide liquidity to the financial system and prevent a collapse of transactions and a global crash. hence they established liquidity swap arrangements with the intention to provide foreign currency funding bis central bankers ’ speeches to the banking systems in their

eurodenominated debt as it seems cheaper in interest rate differential terms. in short, apart from some technical conditions ( e. g. shorter - dated german bunds which became eligible, while they were previously not, because of their negative yields, and hence there was less need to buy longer - dated bonds and / or volatility clustering in global bond markets, namely that volatility in itself generates further volatility ), this recent bond sell - off reveals vulnerabilities in the current low - yield / low - inflation environment and can also be regarded as an evident financial implication of divergent monetary policies. one should not forget that there is still another trillion left from draghi ’ s qe programme to be paid. finally, bis central bankers ’ speeches some analysts claim that an issue of macroprudential policy arises here which, as is wellknown, addresses risks to the financial system as a whole. more precisely, the ecb ’ s implementation of the expanded asset purchase programme in the current juncture might necessitate the use of existing macroprudential tools to oversee any fallout from the credit expansion preventing or at least moderating asset market bubbles, or even the creation of new tools, for instance to address pressures in the insurance sector as a result of the lowyield environment in which they operate today. capital flows the repercussions on the world economy of the redirection of a major central bank ’ s monetary policy and / or of divergent global monetary policies which sharply alter global exchange rates, is one of the oldest questions in international monetary economics and was posed again recently, when the fed launched its quantitative easing ( qe ) programme. at the time, the governor of the central bank of brazil expressed his strong dismay at the loosening of the fed ’ s monetary policy and its impact on emerging countries, in the form of large capital inflows triggering a sharp appreciation of their currencies and a decline in exports. it is indeed quite difficult to predict the precise form of ( sometimes conflicting ) spillover effects stemming from such a change in the monetary policy stance. for instance, the fed ’ s quantitative easing 1 ( qε1 ) programme was followed by capital flows out of emerging economies ( emes ) into us treasuries, while the second round of quantitative easing ( qε2 ) had the exact opposite effect. since then, the fed ’ s change of tack has once again spurred intense reactions