to domestic economies. large capital flows moved to emerging markets searching for yield. as christine lagarde recently recalled at the jackson hole economic symposium, since 2008, cumulative net flows to emerging markets have risen by $ 1. 1 trillion, which is large from an historical point of view. a third risk relates to exit strategies from monetary accommodation. exit risks are now taking centre stage in the debate. ( but to be clear : for us in the euro area it is too early to start the exit. ) on this front, i would like to recall a similar episode from which we can draw some lessons : the 1994 exit of the federal reserve. in early 1994, when the us recovery gained strength, the fed started a tightening cycle and bond markets crashed not only in the us but al - so around the world. if spill - overs were large bis central bankers ’ speeches in 1994, we can expect them to be even larger to - day in an even more deeply interconnected world. one striking feature of the 1994 bond market crash is that yields actually overreacted to macroeconomic news, while they did not react strongly to fed interest rate hikes. for example, 8 of the 10 largest daily in - creases in the 10 year us treasury yields in 1994 were related to the release of better than expected economic data. anecdotal evidence also suggests that inflation fears contributed to the spike in yields. indeed, in 1994, the political pressure on the fed to slow the tightening cycle was high. all reserve bank presidents were invited to explain their views before the house and senate banking committees, which was unprecedented. according to commentators, this public dispute damaged the credibility of the fed, contributing to the inflation scare. in my view, two important lessons seem to emerge from the 1994 episode : • first : clarity regarding central banks ’ “ reaction functions ” is crucial to avoid sharp movements in yields. this is because the impact of economic developments on yields depends on markets ’ expectations on how the central banks will react. • second : inflation fears amplify the impact of economic developments on yields. there - fore, it is important that inflation expectations remain well anchored. while central banking and the functioning of capital markets have changed since and new challenges and complexities have emerged, the lessons from the 1994 episode remain valid and might help in addressing these challenges. the first challenge is that monetary policy is currently in unchartered territory. policy choices of central banks are not any more limited to the single interest

vitor constancio : presentation of the european central bank annual report 2015 to the committee on economic and monetary affairs of the european parliament introductory remarks by mr vitor constancio, vice - president of the european central bank, to the committee on economic and monetary affairs of the european parliament, brussels, 7 april 2016. * * * mr chairman, honourable members of the committee on economic and monetary affairs, ladies and gentlemen, i am honoured to once again present the ecb ’ s 2015 annual report to your committee. please allow me to take this opportunity to express my heartfelt thoughts, and those of the ecb ’ s executive board and ecb staff, for the victims of the recent attacks in brussels, in the heart of europe. our thoughts are also with their families and friends. events like this remind us that europe must stand together. and our institutions have a role to play in this respect. the presentation of our annual report to those representing the european union ’ s citizens is a key element of our accountability, which is a necessary counterpart to our independence. that is also why we have decided to publish our feedback to the input you provided in the resolution on the 2014 annual report, together with this report. this is the first time we have done so. this decision reflects the importance of having a fruitful dialogue between our institutions, for the benefit of european citizens. today, i will first discuss the monetary policy measures that the ecb has taken to fulfil its mandate and what impact these have had on the real economy. i will then explain how steps to complete banking union and a capital markets union would not only support a strengthened emu ( along with fiscal and economic union, as well as democratic accountability ) but also contribute to enhancing financial stability. as european developments need to be put into a wider perspective, i will also say a few words on ongoing discussions in international fora regarding global developments and international financial regulation. monetary policy and its impact on the real economy 2015 was characterised by a modest economic recovery. however, inflation dynamics were weak and continued to deteriorate throughout the course of the year. thus, after adopting our credit easing measures in the middle of 2014, we took further decisive action in 2015 to pursue our price stability mandate. let me remind you that, in january last year, inflation in the euro area had moved into negative territory, the outlook on inflation had worsened significantly and market - based inflation expectations stood at historic lows. in this situation, we