The first is addressing the immediate short run concerns emanating from various shocks; and the second is implementing structural reforms to ensure that financial stability becomes embedded in the underlying structure of the economy in the long run. In terms of challenges, the former essentially concerns the challenge of maintaining economic stability through appropriate policy settings and actions to offset the various shocks hitting the economy at any given point in time. The latter, on the other hand, focuses on strengthening the institutional framework for monetary policy and financial supervision as well as fostering financial system development that improves the ability of the system to absorb shocks by itself in a way that minimizes the impact on the real economy without the need for policy intervention. Let me now discuss some specific challenges to monetary and financial stability in emerging markets from both the short and the long run perspectives. For short-run stabilization, it is clear that one of the important challenges at present is how to contain financial vulnerabilities that accompany an influx of short-term capital. In coping with capital flows, lowering interest rates to reduce the relative attractiveness of the country to capital inflows may be a first appropriate way to ensure price stability. But, in most cases, fast appreciation may not subside as exchange rates tend to behave more like asset prices than relative goods prices.
In this context, an expanded asset purchase programme was then launched. On March 9th, the Eurosystem began purchasing public sector securities in the secondary market along the curve from 2 to 30 years, being mindful of being market neutral. Purchases of securities at negative yield are permissible, as long as the yield is above the deposit facility rate. Marketable securities purchased under this program will be made available for securities lending. This programme is intended to stimulate the economy through different channels. The first one is the portfolio rebalancing channel, in which the fall in yields on safe government bonds induces investors to buy riskier assets, thereby stimulating the economy. Since the launch of the programme yields have dropped not only for the assets purchased but also for bank and corporate bonds and equity prices have continued to rise. A second channel works through lowering and flattening the yield curve. The purchase programme will continue until the end of September 2016 and beyond if we do not see a sustained adjustment in the path of inflation. This reinforces the guidance that interest rates will remain low for an extended period of time. A third channel is related to increasing credit supply. If the Euro-system buys assets from non-banks or institutions, then these funds will reappear as deposits in the banking system. 6  Andrade and Le Bihan, 2013, Inattentive professional forecasters, Journal of Monetary Economics, volume 60, p. 967–982.