DOCUMENTOS DE POLÍTICA ECONÓMICA
BANCO CENTRAL DE CHILE
Global Confidence Crisis:
The Value of Waiting and Coordination Failures Revisited
José De Gregorio
Governor
Central Bank of Chile
N.° 31 - June 2009
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GLOBAL CONFIDENCE CRISIS:
OF AND
THE VALUE WAITING COORDINATION FAILURES REVISITED
José De Gregorio
Governor
Central Bank of Chile
June 2009
Abstract
A central aspect of the global current recession is the crisis of confidence,
understood as a worsening of expectations and a rise in uncertainty. This
document explains the synchrony and severity of the crisis with a model that
allows the existence of multiple equilibria, coordination failures and uncertainty
affecting the decision making process. In this type of model, which includes
uncertainty and irreversibilities, the choice is no longer between spending and
not spending, but rather between spending, not spending, or waiting. Thus,
facing an uncertainty shock that is common to all, households and firms
paralyze their spending, causing a collapse in demand. This type of model is
consistent with actual facts of the current crisis: unprecedented synchrony of the
crisis, global uncertainty and distrust were particularly acute towards the end of
last year and the severe drop in demand was concentrated largely in durable
goods.
GLOBAL CONFIDENCE CRISIS:
OF AND
THE VALUE WAITING COORDINATION FAILURES REVISITED
José De Gregorio∗
Governor
Central Bank of Chile
June 2009
"When, as today, the unknown unknowns dominate, and the
economic environment is so complex as to appear nearly
incomprehensible, the result is extreme prudence, if not outright
paralysis, on the part of investors, consumers and firms. And this
behaviour, in turn, feeds the crisis." (Blanchard, 2009).
I want to begin by thanking you for inviting me to open the academic year of the
PostGraduate Program of the School of Economics and Business Administration at Universidad
de Chile. Most of my presentations are for an audience that is primarily interested in
learning about the Bank's view on the economy, so my lectures tend to focus largely on the
national and international junctures and their prospects. On this occasion, I will take
advantage of the academic setting that brought us together, and the freedom I was given to
choose the subject, to refer to a central aspect of the current global crisis, namely the
confidence crisis, focusing on some key concepts that can help us understand what is going
on at this global economic juncture.
The natural question here is: what was the ingredient that led the financial events of
midSeptember of last year to end up the way they did? The developed world entered a severe
recession, and output dropped simultaneously in most countries. The crisis spread around
the world like a virus, with unprecedented and, of course, unforeseen strength and speed,
making no distinctions among economies' strengths or weaknesses (Figure 1).
What happened? Why was there no differentiation? How could such massive contagion
occur? Why the synchrony? All of these are very important questions in understanding how
the crisis was transmitted and how we will make it through. If there is one thing that is
difficult to explain it is the intensity of its impact. In Chile, neither the path that the
domestic economic cycle was experiencing nor the analysis of traditional transmission
channels for an external crisis - that is, financial and commercial channels - are capable of
fully explaining what happened (De Gregorio, 2009).
The hypothesis that seems to have most ground at the moment is that a deterioration in
global confidence, understood as a worsening of expectations and increased uncertainty
around the world, has amplified the response to the initial impact, pushing us into a more
acute and synchronized crisis than we could envision at first.
∗
Prepared for the keynote speech at the opening of the Post-Graduate Program of the School of Economics
and Business Administration of Universidad de Chile. I wish to thank Pablo García and Enrique Orellana for
their helpful contributions and comments.
It helps to study the historical relationships among the data if cycles and patterns tend to
repeat themselves on a regular basis. But in the current crisis, which has no precedents in
many decades, to look at simple correlations based on normal periods can be very
misleading. From my standpoint, it is more important to conceptualize what is happening
today, in order to analyze the prospects of the economy and draw policy conclusions.
To address this subject I will use some basic economics that will allow us to understand the
synchrony and severity of the current crisis. These arguments have been present for many
years in the profession and have gained enormous importance today. The first refers to the
existence of multiple equilibria and the effect of failed coordination. The second deals with
the effect of uncertainty on economic decision making. These two elements help us
understand how the confidence crisis that swept the world aggravated the output
contraction, hitting hardest the demand for industrial goods. In the next section I will
describe the main ideas that clarify the impact of the confidence crisis, and then analyze the
international scenario in the following section.
Some basic ideas
The objective here is to account for the basic ideas behind the coordination failures,
multiple equilibria and how uncertainty affects aggregate demand.
Coordination failures
Let us assume a very simple economy1 with a large number of consumers. Each consumer
demands units of a manufactured good, which we can think of as a durable good (e.g.,
D
car, house, appliance, electronic device). We can also think of durable goods demanded by
firms when they invest (e.g., machinery and equipment, warehouses, plants).
The demand of consumers and firms is a function of their expectations of future income,
directly related with the expected value of aggregate output in the economy. will denote
Y
the level of output and its future expected value. We will also assume that the demand
EY
depends on the level of uncertainty which we will call σ and I will discuss later. For now, it
is enough to consider that the demand falls when uncertainty grows. Thus, the demand for
goods is represented by
D(EY,σ).
Firms, in this example, produce what is demanded from them.2 Normalizing the population
of firms and consumers to 1, the equilibrium will occur when the demand equals the supply
In equilibrium under rational expectations, product must be equal to expected
(Y=D).
product, or:
Y=D(Y,σ)
Now, with a couple more assumptions we can find the equilibrium (Figure 2). The
equilibrium is unique in A. For this, the demand is assumed to be concave, that is, any
additional demand for goods is smaller as income increases. To ensure a unique equilibrium
we assume that, for EY=0, the demand for the good is positive. This can be understood as
the individual having another source of income and expenses, and always wanting to devote
part of the other income to consume this good. Another simple way of seeing it is to think
that the individual will want to borrow to acquire this good, even if her income is very low,
presumably because she always expects to have the funds available in the future to repay.
As we will see, however, it is possible that multiple equilibria exist, with low and high
output, as a result of coordination failures.
Uncertainty and the value of waiting
Decision making under uncertainty has always been a complex thing to study. Often to
simplify, we turn to quadratic specifications in order to use certainty equivalence. Surely
this falls short of describing the much more complex reality; for example, when the
analysis considers decisions to invest or consume (durables) in the presence of
irreversibilities.3
When a decision is irreversible, there is no chance to back out; for example, an investment
is made for which no secondary market exists to liquidate it. The purchase of a durable
good is another case. We know, however, that in general there will always be some way to
get rid of the good, but part of its cost is impossible to recover-it is a sunk cost. A firm
can build a plant, for instance, but to get rid of it the firm will have to resell it below cost
because of specific features that prospective buyers will not appreciate.
In an environment of certainty, expenses will be incurred whenever the benefits outweigh
the costs. Therefore, the choice is between spending and not spending. But with uncertainty
and irreversibility, the choice is no longer between spending and not spending, but rather
between spending, not spending, and waiting. This option has a value, because as time goes
by, uncertainty fades.
Thus, the more uncertain a choice is, the more profitable it is to wait. Imagine the case of a
firm having to invest. Such investment consists of enlarging its facilities and purchasing
new capital goods. If things go right, the investment will be very profitable. If things go
wrong, the benefits of investing will be very low, and the present value of the project will
be negative. Hence, had the firm known that things were going to go wrong, it would have
preferred not to invest. If the passing of time helps to know with more certainty whether
things will go right or wrong, the firm may find it convenient to wait and see. Waiting
permits it to keep the choice between investing and not investing open, which is not the
case when the investment has already been made. Thus the investment can be analyzed
with the theory of options. The firm must balance the cost of postponing the investment
with the benefit of learning more about the situation and making a better informed decision.
Then, the larger the uncertainty, the greater the benefit of waiting.
This same logic can be applied to a consumer that must decide on the purchase of a durable
good, but is uncertain about his future income. If the probability of losing his job increases,
it may be advisable to wait before making the decision. Although this analysis is very
simple intuitively, it is not easy to formalize. A consumer can sell his car or an electronic
device if he loses his income, but it will be at a cost. The higher this cost, the more
irreversible the decision becomes.4
This idea permits us to explain why the decision to wait and see can be optimal and permits
us to justify why demand, depends negatively on uncertainty, σ.
D,
The increase in uncertainty and the fall in demand
What is critical about this analysis is that it can be very important from a quantitative point
of view. The decision is not marginal. An increase in uncertainty does not result in "some"
decrease in spending. An uncertainty shock that is common to all will lead every firm and
every consumer to paralyze spending, causing a collapse in demand.
The main point is that this fall can be so sharp that one can even have more than one
possible equilibrium (Figure 3). This could be the case if households decide to increase
their savings significantly, such that low-income families would rather not spend on
durable goods. The same could be true if firms decide not to invest. Thus, households and
firms would delay their decisions to spend on durable goods, awaiting uncertainty to clear
up. Households, however, would continue to spend on non-durables. Actually, the share of
goods like foodstuff in the total consumption basket would increase. Durable and
investment goods, meanwhile, are the ones subject to this wait and see strategy and, by
their own nature, their purchase can be postponed.
Thus, there are two possible equilibria: B and C, both with output below the original level
A. Furthermore, we can think that in case C the loss of confidence is very big, which
magnifies the fall in demand that may result from a cyclical adjustment. In such a case
pessimism dominates. Everyone thinks that economic activity will fall due to increased
uncertainty and that is exactly what happens, so pessimism is justified. This point is more
general: facing multiple equilibria, how do private expectations coordinate for the economy
to converge to one or the other? Evidently there is no natural mechanism, so failed
coordination can easily lead the economy to settle in the worst equilibrium.
The exercise I have presented is pretty simple and it surely overlooks many relevant
aspects, especially the dynamics that might allow us to analyze the loss of confidence. It is
still helpful because it explains why the increase in uncertainty triggered by the
deterioration in output and the financial crisis deepens the fall in output, whose effects can
be substantial.
Let me proceed, then, by showing you what has been happening in the world and in Chile
and how we can observe the increase in uncertainty in agents' expectations and its
propagation around the globe.
The Global Crisis of Confidence
I will start by listing the main aspects I will be focusing on:
• The synchrony of this crisis is unprecedented. The drop in output made no
distinction among economies' strengths or weaknesses.
• Global uncertainty and distrust were particularly acute towards the end of last year.
• The severe drop in demand was concentrated largely in durable goods. Investment
and consumption of these products collapsed by the end of 2008.
To contextualize this episode, I will begin by recalling that a debate about the accumulation
of strong global imbalances had been going on for several years, focusing on their
implications and ways to correct them. The Central Bank of Chile identified them as a
significant risk in many of its Monetary Policy Reports. Meanwhile, the world proceeded
with very unusual dynamism. World GDP grew by an annual average of nearly 5 percent
between 2004 and 2007, while commodity prices increased manifold. Copper, for instance,
went from selling at about US$1.00 per pound in late 2003 to approaching and even briefly
surpassing $4.00 during April and July 2008. Oil went from trading at around 30 to 35
dollars per barrel in late 2003 to close to 150 dollars last July. Meanwhile, in the United
States, the subprime mortgage crisis had already erupted in mid 2007, and by March 2008
an important financial institution, Bear Stearns, had collapsed.
An important point of this preamble of the facts of September 2008 is that the string of
events I just mentioned had no significant effect on economic expectations, nor did it
change the mean of expected growth or increase uncertainty. This, despite the fact that the
Bear Stearns bankruptcy was a very significant occurrence for the international financial
market. Actually, the volatility of stock markets went up a rung in mid-2007, but was pretty
mild if compared with September 2008 (Figure 4). This stock volatility index (VIX), which
is normally used as a good indicator of uncertainty,5 shows how it increased several times
during the peak of the crisis in September and October of last year. The latest figures show
uncertainty declining, although it remains high.
Thus, according to market consensus, world growth for 2008-2009 posted no significant
changes between March and September of 2008 (Figure 5). The situation in Chile did not
differ much (Figure 6). During the whole of 2007, growth projections for 2008 fluctuated
around 5 percent, even after the eruption of the housing crisis in the United States. At the
time of Bear Stearns' bankruptcy there had been some adjustment in expected growth for
the year, but in September there was even a slight correction upwards. The Bank's forecasts
were similar. The growth projections for 2009 are not so different; actually the larger part
of the correction was done after December 2008. In sum, since September a significant
correction has been applied to the expected value for growth.
In addition to a smaller forecast for future earnings, there has been an increase in related
uncertainty (Figure 7). In the United States, in early 2008, the width of the distribution of
growth projections for 2009 was 2 percentage points. In early 2009, the same width
increased to 2.3 percentage points and, by May, with at least the data for the first quarter of
the year available, the width was of 3.3 percentage points. In Chile, GDP projections taken
from the Economic Expectations Survey depict a similar picture, that is, the level of
uncertainty among those forecasting growth has been increasing, despite the fact that, as the
year passes and new data are added, the projections should not only be better but also have
a smaller degree of uncertainty.
What began happening in September 2008 that changed so dramatically the economic
scenario around the world, Chile included? As I said before, the simple observation of
traditional transmission channels of an external crisis cannot explain the events. On one
hand, financial conditions tightened significantly worldwide. The domestic financial system
also suffered, although without any episodes that might compromise its solvency. However,
the possibility of reduced access to external funds, plus the increase in global risk, put
pressure on internal financial conditions, causing a significant increase in interest rates and
lending standards. At the same time, when future earnings became more uncertain,
households and firms significantly reduced their demand for new credit, as revealed by the
Banking Credit Survey that the Central Bank conducts on a quarterly basis.
Overall, the tightening of financial conditions was not so severe as to hinder banks' access
to external credit or their proper functioning domestically. This was possible also because
of a set of measures adopted by the Central Bank and the Ministry of Finance to ensure the
proper functioning of the financial system.
Nonetheless, due to the higher uncertainty, the sensation that the world economy might
enter into a significant depression with huge losses of wealth triggered an unprecedented
erosion of global confidence. Growth forecasts began adjusting at great speed. Undoubtedly
this hit the behavior of households and firms hard around the world, which stopped their
spending plans, or put them on hold indefinitely.
Consumers' and entrepreneurs' expectations indicators showed a profound weakening in
the last quarter of 2008 (Figure 8). A look at durable goods consumption indicators reveals
the steep fall in sales levels (Figure 9). All this takes me back to the previous point in my
presentation. The dramatic increase in uncertainty that began in September of last year
altered people's behavior substantially, leading to an abrupt and sudden paralysis of the
demand for durable goods.
At the world level, the situation wasn't so different. Expectations of both individuals and
firms suffered a severe decline (Figure 10). Stock prices around the world dropped
dramatically, reflecting the worsened expectations (Figure 11). The prices of commodities
also fell because of the reduction in demand expected for the future. The exception was
gold, commonly used as a store of value at times when perceived risks increase (Figure 12).
The drop in demand was particularly steep in the manufacturing sector. This explains the
severity of the corrections to growth forecasts in countries that export manufactured
products such as Japan and Germany and the recently industrialized Asian economies,
among others. These countries are expected to experience an average fall in GDP of around
5 percent during this year.
The main effect of the reduction in world demand on the Chilean economy has been the
drop in the prices of our exports, and those of many other countries. This pulled down the
terms of trade and debilitated the national income prospects. However, as I have said a
number of times before, the impact of reduced demand is milder in countries that export
natural resource related goods, like Chile. Hence the drop in exports in countries selling
raw materials to the world has had a relatively small effect on their output. Their demand
has dropped, and so have their prices, but they have not experienced the collapse associated
with postponing expenditures on goods of industrial origin. Although selling is tougher,
export volumes have adjusted less than the world average, which is expected to fall around
10 percent this year, while the baseline scenario of our latest
Monetary Policy Report
foresees that the volume of Chilean exports will drop around 2 percent annually in the same
period. This has been one of the factors explaining the milder impact of the crisis in Latin
America. This crisis has been particularly harsh on industrialized economies, which have
seen a steeper fall in demand for their products due to the great fall in demand for durable
and investment goods (Figure 13).
Final Remarks
Expansionary macroeconomic and fiscal policies can help boost economic activity when
facing a deep drop in demand. However, their effects on confidence are not obvious. Thus,
it is essential for measures taken to be sustainable and credible. If they lack credibility, their
expansionary effect will be constrained by lack of confidence. Furthermore, it is
conceivable that in the presence of deep macroeconomic weakness expansionary policies
might exacerbate the loss of confidence. This explains why many countries need to raise
their interest rates and make fiscal adjustments in the midst of an economic crisis, because
their economic policies and financial systems lack credibility. This is obviously not the case
in Chile today. In our country, the extraordinary fiscal and monetary stimulus should be
very effective, because these efforts are sustainable and credible. This is visible also, to
different degrees, in other economies in the region that are committed to foreign exchange
flexibility, price stability, fiscal responsibility and financial soundness. Developed
economies will need to correctly address the medium-term effects of monetary expansions
and increased public debt.
If the origin of the global loss of confidence is the financial crisis, then stabilizing the
banking industry and restoring the payment system is not only a priority but a necessary
condition for economic recovery. Hence the importance that developed countries have
placed on stabilizing the financial system, which is timidly beginning to bear fruit.
No simple or rapid prescription exists to rebuild the confidence that has been lost. Some
think that conveying optimism is a good idea. However, if such optimism has no ground,
only a lack of sense of reality will be communicated. On the other hand, sending a
pessimistic message can erode confidence even further. If there is one thing we know, not
only about economics but about every walk of life, it is that people cannot be fooled
forever, so the only way to act is realistically.
We are enduring a world recession, and nobody disagrees about the current hardships the
world economy faces, so the discussion has shifted to when we will see the first signs of
recovery. The scenario of global economic and financial catastrophe has dissipated, and
confidence seems to be recovering. One piece of evidence that the "free fall" of the world
economy may have stopped is the evolution of growth projections for the year (Figure 14).
After the sharp deterioration post-September 2008, the downward revision to the growth
expected for this year has moderated in magnitude significantly in most of the economic
zones. In Japan, which has suffered one of the most intense revisions in the past few
months, the latest forecast revised upwards the expected growth for 2009. GDP growth for
2010, which had posted small but systematic falls since September, is showing stability in
the latest forecasts. Combined with this, perceptions regarding investors' appetite for risk
seem to be picking up. Sovereign premiums have declined, capital flows to emerging
economies are returning, interest rates on Treasury bonds are increasing in many economies
and the various expectations indicators are signaling some degree of recovered confidence.
Extreme pessimism is withdrawing, but we cannot expect an accelerated recovery.
The confidence crisis is one piece-an important one- of the explanation of the synchrony
and strength of the shock that occurred at the end of last year. However, the distortions that
motivated this confidence crisis will have persistent effects, even after the confidence is
fully recovered.
The loss of confidence explains the sharp and sudden downfall of the global economy, as
well as its propagation to the other countries. However, the origin of the crisis is not this
loss of confidence, but rather can be traced back to years of financial excesses that will take
time to resolve.6 The big and, in the light of what we know today, unreasonable private
overborrowing in many developed countries will have to be corrected, leading to significant
de-leveraging mostly of households. They will raise their saving rates which will hold back
growth in consumption and demand. The countries that grew fast based on credit booms
will have to adjust. We cannot expect the world economy to go back to pre-crisis growth
rates. These are normal stages of the business cycle, but the magnitude of the imbalances
that formed in those countries now experiencing financial crises indicate that their recovery
will be slower. This is why when the downturn of the economic cycle combines with a
financial crisis, its costs are magnified. This can be understood and even quantified by
using consumption theories, but that we will save for a future opportunity.
References
Blanchard, O. (2009), "(Nearly) Nothing to Fear but Fear Itself," January
The Economist,
29th.
Bloom, N. (2009), "The Impact of Uncertainty Shocks," Vol. 77, No. 3, pp.
Econometrica,
623-685.
Cooper, R. (1999),
Coordination Games: Complementarities and Macroeconomics,
Cambridge University Press.
Cooper, R. and A. John (1988), "Coordinating Coordination Failures in Keynesian
Models," Vol. 103, No. 3, pp. 441-463.
Quarterly Journal of Economics,
De Gregorio, J. (2007), Macroeconomía. Teoría y Políticas, Prentice Hall-Pearson
Educación.
De Gregorio, J. (2009), "Chile frente a la recesión mundial," Vol. 113,
Estudios Públicos,
summer 2009, pp. 5-26.
Dixit, A. and R. Pindyck (1994), Princeton University
Investment Under Uncertainty,
Press.
Figure 1
Countries posting drops in real GDP in the fourth quarter of 2008 (*)
(percentage of whole sample)
100 100
90 90
80 80
70 70
60 60
50 50
40 40
30 30
20 20
10 10
0 0
71 74 77 80 83 86 89 92 95 98 01 04 07
(*) Using the annualized quarterly GDP for a sample of 29 developed an emerging economies.
Source: Central Bank of Chile.
Figure 2
Equilibrium
D A
Y, EY
Figure 3
Multiple Equilibria
D
A
B
C
Y, EY
Figure 4
Volatility of S&P 500 (*)
(percent)
Lehmann, AIG, etc.
Subprime crisis Bear Stearns
90 erupts goes bankrupt 90
80 80
70 70
60 60
50 50
40 40
30 30
20 20
10 10
0 0
Jan.06 Jul.06 Jan.07 Jul.07 Jan.08 Jul.08 Jan.09
(*) Corresponds to volatility index VIX.
Source: Bloomberg.
Figure 5
Projected world growth
(annual change, percent)
Bear Stearns goes
Subprime crisis
4.0 4
bankrupt
erupts Bear Sterns goes
Lehmann, AIG,
bankrupt
3
etc.
3.5
2
Lehmann, AIG, etc.
3.0
1
0
2.5
-1
2.0
-2
1.5 -3
07 May Sep. 08 May Sep. 09 May 08 Apr. Jul. Oct. 09 Apr.
(a) Projections for 2008 (b) Projections for 2009
Source: Consensus Forecasts.
Figure 6
Projected growth for Chile
(annual change, percent)
Bear Stearns goes
Subprime crisis
6 6 bankrupt Lehmann, AIG,
Bear Sterns goes
erupts
etc.
bankrupt
Lehmann,
5
5
AIG, etc.
4
4
3
2
3
1
2
0
1 -1
07 May Sep. 08 May Sep. 08 Apr. Jul. Oct. 09 Apr.
(a) Growth projectoins for 2008 (a) Growth projectoins for 2009
Source: Economic Expectations Survey, Central Bank of Chile.
Figure 7
Distribution of growth projection for 2009 (*)
United States Chile
-1.3 -0.8 -0.3 0.2 0.7
-2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0
May 07/Aug.08 Sep./Dic.08
Jan. 08 Sep. 08
Jan. 09 May. 09 Jan./May 09
(*) For the United States, minimum (maximum) point of each curve shows the difference between the lowest
(highest) projection and the median. For Chile, the difference between decile 1(9) and the median.
Sources: Consensus Forecasts and Economic Expectations Survey of the Central Bank of Chile.
Figure 8
Consumers' and entrepreneurs' perception indexes
90 140 70 70
60 60
70 120
50 100 50 50
40 40
30 80
30 30
10 60
04 05 06 07 08 09
86 92 98 02 04 06 08
Total IMCE(3) Excl. mining (4)
IPEC (1) U. de Chile (2)
(1) Values above (below) 50 points indicate optimism (pessimism). Before January 2003, the index was
published quarterly. From then on, its publication is monthly.
(2) Index, March 2001 = 100.
(3) Values above (below) 50 points indicate positive (negative) expectations.
(4) Weighted average of three sector confidence indicators: manufacturing Industry, retail and
construction.
Sources: Adimark, Universidad de Chile and ICARE/Universidad Adolfo Ibáñez.
Figure 9
Durable goods sales
(index, average January 1996 - April 2009=100)
230 230
190 190
150 150
110 110
70 70
30 30
96 97 98 99 00 01 02 03 04 05 06 07 08 09
New automobiles' sales (units) Capital goods imports (nominal)
Sources: Asociación Nacional Automotriz de Chile (ANAC) and Central Bank of Chile.
Figure 10
Economic perception
(diffusion indexes, percent)
Business confidence (1) Consumers' confidence (2)
70 140 120 60
60 120 100 50
50 100 80 40
40 80 60 30
30 60 40 20
20 40 20 10
07 Jul. 08 Jul. 09 07 Jul. 08 Jul. 09
Brazil China S. Korea Brazil S. Korea
U.S. Mexico China Japan
Japan Eurozone U.S. Eurozone
Mexico
(1) S. Korea is anchored in 100. (2) Series of Japan, Eurozone and S. Korea anchored in 50. The rest of the series are
indexes with base January 2007=100.
Source: Bloomberg.
Figure 11
Stock market indicators (*)
(Index 01/03/2005 =100)
400 400
Subprime crisis Bear Lehman,
erupts Stearns AIG, etc.
350 350
300 300
250 250
200 200
150 150
100 100
50 50
Jan.05 Jul.05 Jan.06 Jul.06 Jan.07 Jul.07 Jan.08 Jul.08 Jan.09
Latin America Emerging Asia Emerging Europe
Eurozone United States Japan
(*) MSCI for regions, Dow Jones for the U.S. and Nikkei for Japan.
Source: Bloomberg.
Figure 12
Commodities prices
(index 01/03/2005=100; gold in US dollars per ounce)
400 1,200
Lehman,
AIG, etc.
Subprime crisis
Bear
erupts Stearns
300 900
200 600
100 300
0 0
Jan.05 Jan.06 Jan.07 Jan.08 Jan.09
Gold
GSCI grains and cereals
GSCI energy
GSCI metals
Source: Bloomberg.
Figure 13
Share of durable goods in total exports and contribution of exports to GDP
quarterly growth in the fourth quarter of 2008
60
HK
SIN
50
COR
HUN
exports)
40
TAI
total
FIN
exports ALE
RCH
30
of
HOL
20
Durable
CAN
BRL
BEL NZL
10
(percentage
AUS
R2 = 0,52
ARG NOR
CHL COL
-35 -30 -25 -20 -15 -10 -5 0 5 10
Exports
(contribution to GDP, annualized quarterly change, percent)
Source: Central Bank of Chile.
Figure 14
Change in growth projections for 2009 and 2010
(month-on-month variation of median projection, percentage points)
2009 2010
0.5 0.5 0.5 0.5
0.0 0.0
0.0 0.0
-0.5 -0.5
-0.5 -0.5
-1.0 -1.0
-1.0 -1.0
-1.5 -1.5
-1.5 -1.5
-2.0 -2.0
-2.0 -2.0
-2.5 -2.5
-2.5 -2.5
Feb.08 Jul.08 Dec.08 May.09
Feb.09 Mar.09 Apr.09 May.09
United States Japan Eurozone Latin America
Chile Mexico Brazil Eastern Europe
Source: Consensus Forecasts.