is key to keep in mind the differences between these and the financial cycle, since they are generally not synchronized and have different timeframes or temporality. there are also clear differences between the best instruments to achieve price stability and financial stability, given that the regulatory and supervisory policies can address the specific challenges of financial stability. 2. interconnection between monetary and financial policies. despite their distinct character, there is also a close interconnection between monetary policy and financial stability that must not be underestimated. many emerging economies have experienced episodes of macroeconomic weaknesses, which have intensified due to financial crises. as a result, financial stability considerations have been a very important component of risk assessments for monetary policy decisions in these countries. whereas prior to the global financial crisis financial stability was taken for granted in advanced economies, after this episode these economies have given a more prominent role for financial stability within their policy framework. in this sense, it is imperative that the challenges and risks associated with the interconnection between monetary policy and financial stability are considered. 3. carry out an integrated policy assessment. in order to assess the type of stress scenarios to which an economy ’ s financial system is subject to, it is essential to thoroughly analyze the interaction between several policies. this is better done by an integrated policy approach that takes into account the interrelation of monetary policy, the exchange rate regime, fiscal policy and macroprudential measures. it is necessary to comprehensively model the risks to which the economy is subject to, in order to adopt the most appropriate policies. in sum, considering these three dimensions of the analysis can lead to a more effective central bank decision - making process and help attain the central bank price stability and financial stability objectives. finally, it is important to be mindful of the accumulation of risks that can take place over time, especially in a scenario like the present one where the monetary policy stance of the advanced economies have become more accommodative, and therefore the search - for - yield phenomenon is likely to become an important driver of capital flows. it is very clear to us that there is a significant need for a better understanding of the mechanisms by which monetary and macroprudential policy interact and global financial cycles propagate and impact our own financial system. to conclude, i would like to restate that banco de mexico considers each of these topics highly relevant for monetary policy under the changing global conditions, and thus the importance of the research being discussed in this conference

##4, july. bis central bankers ’ speeches vulnerabilities in some countries, such as significant fx exposure, as well as indications of overheating and excess credit, and additional information, especially as monetary tapering proceeds, may uncover further financial imbalances in these or other nations. 5 the beginning of unwinding since last may, there has been a negative change in investor sentiment towards emerging markets, expressed in sharp asset - price drops and heightened volatility. notably, currencies have trended weaker, and domestic long - term interest rates have risen to levels not seen in more than a year. also, portfolio capital inflows from nonresidents have slowed and even reversed, while the duration of foreign holdings of local - currency government bonds in some countries appears to have fallen. the trigger of this shift in sentiment has been the market perception that the federal reserve will soon start reducing its asset purchases and conclude the program by the first half of the following year. additionally, the estimated time before the first hike in the fed funds rate has been shortened. the revisions in expectations were fueled by the fed ’ s forward guidance referenced to inflation and unemployment, official statements suggesting the proximity of tapering, and incoming data revealing improved economic conditions and prospects in the united states. as a result, the u. s. yield curve has steepened, reflecting a higher term premium and thus probably the expectation of a greater supply of long - term bonds, as well as, to a lesser extent, anticipation of increases in the fed funds rate. other industrial nations have also seen similar effects. 6 as was the case during the recent boom, the interest - rate reaction in many emerging markets has been more pronounced than in the united states, revealing additional risk premiums which may be related to credit and liquidity. also, increased global risk aversion and deteriorated prospects for economic growth in emerging economies could be additional negative factors. the possibility that the fed may soon start reducing its asset purchases is a welcome development. the exceptionally loose monetary policy in the united states and other advanced countries cannot be indefinitely sustained, as the costs and risks involved may be rising and surpass the intended benefits. additionally, the decision to taper will ultimately hinge on an improved u. s. economic outlook, which should benefit the rest of the world, including emerging markets. finally, tapering may facilitate the adjustment required in certain economies afflicted by financial disequilibria which, at least in