My point is rather that it is not surprising that central bank asset purchases may break with some of the regularities we have become used to. The reason is that asset purchases are monetary policy actions that can be anticipated by market participants, just like changes in key policy rates. Unlike conventional monetary policy, however, they have direct implications for the expected supply of and demand for internationally traded bonds and, hence, for the level of the exchange rate that, all other things being equal, clears the resulting capital flows. This may, at times, break the link between future expected rates and the exchange rate. This is clearly visible when we look at slide 6. The chart is based on the same methodology as the spillover chart on slide 4, but it illustrates how much, on average, of the variance in long-term bond yields in one country can be explained by the other country’s term premium and expected short-term rates respectively. 7 / 11  BIS central bankers' speeches  You can see that the moment short-term yields hit the zero lower bound, spillovers in bond markets by and large reflected term premia movements – in both directions. These spillovers may pull the exchange rate away from the path implied by expectations about the future shortterm rate. The extent of the decoupling, in turn, will depend on the expected direction, persistence and degree of international spillovers – something that is inherently difficult to project and price.
Mugur Isărescu: Corporate liquidity and solvency in the Covid-19 pandemic - the role of policies Introductory remarks by Mr Mugur Isărescu, Governor of the National Bank of Romania, at the Virtual Conference of the National Bank of Romania and the International Monetary Fund, 12 February 2021. * * * As prepared for delivery Good morning Director Kammer and to everyone in Washington and good afternoon to our guests and speakers in Europe. Whether you are joining us from Bulgaria, Poland, Croatia or Romania, we are very happy to welcome you to this virtual discussion. The fact that you can be with us from different parts of the world is one of the very few benefits compensating the many challenges this pandemic has forced us to face. Throughout the years, back in the normal days, we had the honor to host, here, at the National Bank of Romania, various presentations of the IMF’s flagship reports that fostered lively discussions among participants. The IMF high-quality research has always provided a strong conceptual and empirical basis for policy-making in our region. This time, we will have the opportunity to discuss the role of policies in corporate liquidity and solvency during the Covid-19 pandemic – one of the most important topics of the Regional Economic Outlook (REO) for Europe published last autumn. The analysis in this edition is aimed at quantifying the potential impact of the COVID-19 crisis on corporate liquidity and solvency risks and assessing the extent to which policy support could help mitigate these risks.