statistically significant. similar results obtain for the correlation of u. s. yields with yields of other industrial countries, including canada, the united kingdom, and japan. that interdependence suggests that monetary policy makers must pay attention to conditions abroad as well as at home. however, the greater analytical complexity and interdependence associated with the globalization of financial markets notwithstanding, both theory and – perhaps more persuasively – recent experience support the view that the federal reserve retains considerable leverage over longer - term rates and key asset prices, although the links from monetary policy decisions to longer - term rates are somewhat looser than those to short - term rates. in particular, by employing consistent and predictable policies, the fed can help to shape market participants ’ views of how future nominal short - term rates are likely to evolve and how they are likely to respond to economic developments. because long - term nominal interest rates can be viewed as the sum of a weighted average of expected future short - term nominal interest rates plus a term premium, federal reserve policies and communications substantially influence the behavior of these rates. in analogous fashion, the fed ’ s ability to influence real interest rates at shorter horizons provides a lever for affecting longer - term real yields. like nominal long - term yields, real long - term yields can be viewed as an average of current and future expected short - term real rates, so that the effects of monetary policy on shorter - term real yields feed into longer - term yields as well. well - anchored inflation expectations are also helpful in this regard : if expectations of longterm inflation are stable, then changes in long - term nominal interest rates translate into similar changes in long - term real rates. the empirical literature supports the view that u. s. monetary policy retains its ability to influence longer - term rates and other asset prices. indeed, research on u. s. bond yields across the whole spectrum of maturities finds that all yields respond significantly to unanticipated changes in the fed ’ s short - term interest - rate target and that the size and pattern of these responses has not changed much over time ( kuttner, 2001 ; andersen and others, 2005 ; and faust and others, 2006 ). empirical studies also find that u. s. monetary policy actions retain a powerful effect on domestic stock prices. 1 if globalization has not constrained the ability of u. s. monetary policy to influence domestic financial conditions, why are long - term interest rates and key asset

to date in the advanced economies, the central banks of those economies have generally continued accommodative monetary policies. some observers, while acknowledging that an aborted recovery in the advanced economies would be highly detrimental to the emerging market economies, have nevertheless argued that these monetary policies are generating negative spillovers. in particular, concerns have centered on the strength of private capital flows to many emerging market economies, which, depending on their policy responses, could put upward pressure on their currencies, boost their inflation rates, or lead to asset price bubbles. although policymakers in the emerging markets clearly face important challenges, such concerns should be put into perspective. first, these capital flows have been driven by many factors, including expectations of more - rapid growth and thus higher investment returns in the emerging market economies than in the advanced economies. indeed, recent data suggest that the aggregate flows to emerging markets are not out of line with longer - term trends. second, as i noted earlier, emerging market economies have a strong interest in a continued economic recovery in the advanced economies, which accommodative monetary policies in the advanced economies are intended to promote. third, policymakers in the emerging markets have a range of powerful – although admittedly imperfect – tools that they can use to manage their economies and prevent overheating, including exchange rate adjustment, monetary and fiscal policies, and macroprudential measures. finally, it should be borne in mind that spillovers can go both ways. for example, resurgent demand in the emerging markets has contributed significantly to the sharp recent run - up in global commodity prices. more generally, the maintenance of undervalued currencies by some countries has contributed to a pattern of global spending that is unbalanced and unsustainable. such imbalances include those not only between emerging markets and advanced economies, but also among the emerging market economies themselves, as those countries that have allowed their exchange rates to be determined primarily by market forces for a discussion, see ben s. bernanke ( 2010 ), “ causes of the recent financial and economic crisis, ” statement before the financial crisis inquiry commission, september 2. for a discussion of the international implications of the two - speed recovery, see ben s. bernanke ( 2010 ), “ rebalancing the global recovery, ” speech delivered at the sixth european central banking conference, frankfurt, germany, november 19. bis central bankers ’ speeches have seen their competitiveness erode relative to countries