. policymakers, in fact all forecasters, invariably construct working hypotheses or models of the way our economies work. of necessity, these models are a major simplification of the many forces that govern the functioning of our system at any point in time. obviously, to the extent that these constructs, formal or otherwise, fail to capture critical factors driving economic expansion or contraction, conclusions drawn from their application will be off the mark. in practice, we continuously monitor a substantial quantity of incoming data to test the capability of any specific model or hypothesis to explain actual outcomes. when we experience outcomes that do not square with what our models have projected, we form new hypotheses and reconstruct the models to more closely conform with our observations. with the virtually unprecedented surge in innovation that we have experienced over the most recent half decade, many of the economic relationships embodied in past models no longer project outcomes that mirror the newer realities. data series that better measure the workings of the so - called new economy are under development. but we still have far more information on the variety of yarns and weaves produced by textile establishments than data on output of the burgeoning software industry or many of the other rapidly growing high - tech industries. the paucity of data for the latter inhibits our ability to fully test our working hypotheses or models in order to detect changes in economic relationships as quickly and confidently as we would like. evidence began to accumulate in the early and mid - 1990s that prospective rates of return on capital were rising. this was implicit both in the marked rise in investments in high - tech equipment and in the updrift in estimates of the growth of long - term earnings by corporate management, which were reflected in the projections of securities analysts. nevertheless, we could not be certain whether what we were observing was a short burst of productivity gains or a more sustained pickup in productivity growth. the view that we were experiencing a sustained pickup gained plausibility when productivity growth continued to increase as the expansion lengthened. but importantly, only after we could see evidence in other economic behaviors and in readings from asset markets that were consistent with accelerating productivity did we begin to develop confidence in our analysis. when confronted with a period of structural change, our policy actions must be based, in large part, on identifying emerging trends from surprises and anomalies in the data and then carefully drawing their implications. it would be folly to cling to an antiquated model in

cleaning - up of highly speculative positions. mexico ’ s relative resilience to external shocks seems to be based on a solid economic foundation, including prudent fiscal management, monetary policy focused on controlling inflation, and a sound regulatory and supervisory framework for financial institutions. additionally, a broad reform agenda may be contributing to a positive perception of the economy. nevertheless, recent financial developments are no guarantee of future tranquility. the challenges ahead are faced by other emerging markets as well. mexico can further differentiate itself through commitment to an announced multiyear reduction of public debt, the convergence of inflation to the permanent target, and a profound implementation of ongoing structural reforms. these measures should foster financial stability and long - term economic growth. concluding remarks the likely divergent monetary paths of advanced nations pose challenges for emerging economies. the proximity of the liftoff of rate hikes in the united states is encouraging, as it will reflect a strong economic performance that should favor the world recovery. the intended gradualism by the fed, and the possible continuation of monetary expansion by the european central bank and the bank of japan, may suggest that the global economy will still see abundant liquidity, with relatively benign financial conditions for emerging markets. however, uncertainty surrounding the pace of u. s. normalization and of monetary actions in other countries may give rise to episodes of international financial volatility. in particular, market sentiment towards emerging economies could change. the best strategy for countries to shield themselves against external shocks is to strengthen economic fundamentals, while at the same time authorities remain on alert for factors that would put financial stability at risk. finally, mexico can potentially remain attractive to investors by assuring public debt sustainability, consolidating convergence of inflation to the target, and implementing ongoing structural reforms in a deep - seated, effective manner. bis central bankers ’ speeches