##s over recent decades ; growth differentials may partly be reflecting these improvements. as is evident in the right - hand chart, the relationship between the growth differential and capital inflows to emes seems to be quite strong. in particular, the rise in capital flows following the global financial crisis coincided with stronger relative growth performance in emes. and in 2011, capital inflows diminished along with the growth differential. another key driver of eme capital flows is global attitude toward risk. swings in sentiment between “ risk - on ” and “ risk - off ” have led investors to reposition across asset classes, resulting in corresponding movements in capital flows. 8 indeed, as shown in chart 3, the most common measure of uncertainty and the market price of volatility – the vix – is strongly correlated with net inflows into emes. although the causes of movements in global risk sentiment are uncertain, the ebb and flow of potential crises and policy responses, such as we experienced during the european crisis, are clearly important. of course, movements in risk sentiment may not be fully independent of monetary policy. an interesting line of research has begun to consider how changes in monetary policy itself may affect risk sentiment. for example, some studies indicate that an easing of u. s. monetary policy tends to lower volatility ( as measured by the vix ), increase leverage of financial intermediaries, and boost eme capital inflows and currencies. 9 see, for example, ahmed and zlate ( 2013 ), bluedorn and others ( 2013 ), fratzcher and others ( 2013 ), ghosh and others ( 2012 ), and imf ( 2011 ). see chen and others ( 2012 ), fratzscher and others ( 2013 ), hausman and wongswan ( 2011 ), imf ( 2013b ), and moore and others ( 2013 ). see ahmed and zlate ( 2013 ), forbes and warnock ( 2012 ), fratzcher and others ( 2013 ), and ghosh and others ( 2012 ). see ahmed and zlate ( 2013 ), bluedorn and others ( 2013 ), forbes and warnock ( 2012 ), and imf ( 2011 ). see bruno and shin ( 2013 ) and rey ( 2013 ). bis central bankers ’ speeches a second point to bear in mind when assessing monetary policy spillovers is that expansionary policies in the advanced economies are not beggar - thy

do not jeopardise the stability of the world economy. today i intend to cover four items : the implications of the single currency for exchange rate policy, the institutional arrangements for the euro area ’ s exchange rate policy, exchange rate developments during the crisis and, finally, some other dimensions of international monetary cooperation. a single currency – a single exchange rate policy what did the creation of the euro mean for exchange rate policy? prima facie, the answer is straightforward. having a single currency automatically implies having a single exchange rate and thus also a single exchange rate policy. yet the repercussions of emu go beyond these “ automatic ” consequences. prior to emu, europe consisted of open and, for the most part, small economies. because of the very large size of the external sector compared with the national economy, the exchange rate played a very important role in the economic performance of these countries. the move to monetary union implied the creation of a new economic entity – “ euroland ” – which is much bigger and much more closed than its component states. this obviously reduces the importance of the exchange rate for “ domestic ” economic developments. in addition, monetary union – by definition – did away with nominal exchange rates between its participants. as a result, gone are the days when an economic or financial crisis could also trigger an exchange rate crisis. by setting up a bigger and less open economic entity and by eliminating intra - area exchange rates, the euro acts as a shield against external turbulence.. the economic crisis has clearly demonstrated this. in rough financial waters, it pays off to be on a large, solid and stable ship rather than on a small vessel. size matters in a global world. allow me therefore to make a bold point : the euro has arguably been the best exchange rate policy decision which europe has ever taken. institutional arrangements for exchange rate policy in the euro area this brings me to my second topic : the institutional arrangements for the euro area ’ s exchange rate policy. in describing these arrangements, we should distinguish between three categories of countries : eu countries which do not take part in erm ii, eu countries which are part of erm - ii, and non - eu countries. first, consider the eu countries which do not take part in erm ii. as eu member states, these countries are subject to the treaty. and the treaty is crystal clear : each country must treat its exchange rate policy as a matter of common interest. 1 this obligation should not be taken lightly