2  BIS central bankers’ speeches  implemented various restrictions to the use of wholesale funding and foreign exchange derivatives. Despite their prevalence, it must be said that the effectiveness of many of these policies, as well as their unintended costs, are still to be determined. Further research is needed here to eventually establish best practices in their conduct.4 Today we will see two examples of such research. The first is a paper by Guido Lorenzoni that looks at capital controls from a different perspective and studies the role they have in the dynamic manipulation of terms of trade. The second is a paper by Marcos Chamon that studies the desirability of sterilized interventions under inflation targeting. The worries about potential reversals in capital flows have been partially borne out by the events of this year. After the Federal Reserve hinted earlier this year the possibility of starting tapering the purchases of long‐term bonds and MBS, financial markets quickly reacted with declines in the prices of US government bonds and increases in mortgage interest rates. At the same time, the spreads of emerging market debt increased importantly, their currencies depreciated against the dollar, and capital flows into these countries declined, albeit with some heterogeneity across countries that seems related to fundamentals. While more moderate than in previous occasions, this pattern is still reminiscent of the sudden stop episodes I previously mentioned. The simultaneous increase in the yields of sovereign bonds of many countries, issued in different currencies, has captured the attention of researchers and policymakers alike.
According to one possible interpretation, this trend is a reflection of two consecutive shocks: from 2000 to 2004, a temporary "demand" shock, mainly reflecting portfolio shifts; and, since 2004, a "supply" shock i.e. an increase in liquid assets triggered by the fall in the opportunity cost of holding money in a context of historically low interest rates. But the fact that this situation has now lasted since 2001 may suggest another explanation: that the apparent break in trend velocity that took place at that time is of a structural nature. On-going econometric research carried out at the Banque de France confirms this intuition. The sharp decrease in interest rates, of course has played a role. Nevertheless, econometrics seems to show that this only accounts for a very small part in the break in the trend visible since 2001. So we might be facing a permanent increase in the demand for money. Consistent with this hypothesis is the fact that money holdings by corporates and financial institutions have grown much faster, in recent years, than those of households. Money and credit growth could then be related to a common cause: financial development and the increasing weight of financial assets in our economies. A lot of work, however, remains to be done to fully understand the changes we are facing. This, in my view, is the beauty of our monetary analysis. It invites us - indeed it forces us – to face the complexity of our world and the ever changing nature of our environment and our behaviour.