Banks subsequently extended the securitisation  1  I am very grateful to Pontus Aberg, Valia Rentzou and Isabel Von Koppen-Mertes for their valuable inputs and contributions, and to David Marqués for useful comments. 2  See ECB (2008), “Securitisation in the euro area”, Monthly Bulletin, February. BIS Review 68/2008  1  model to other forms of credit, such as consumer credit and student loans, that were historically regarded as highly illiquid. In Europe, the market for structured finance products has grown rapidly during the last 5-10 years, often at double-digit rates (See Chart 1). This development was maybe even more pronounced in the euro area compared with other regions due to several factors, including the introduction of the single currency, further financial market integration through the use of 3 credit derivatives and related financial instruments, and an innovative financial industry. Growth in structured finance products has also been fuelled by high demand from investors stemming from the search for yield and diversification opportunities. Securitisation has also been positively affected by the move towards a more market-based financial system. Increasing securitisation of lending-related assets, together with relentless financial innovation in credit markets, have led to the diffusion of a new business organisation – the “originate to distribute” model – among banks, particularly those of large size. There is certainly no need to explain to this audience how, under this new business model, the loans originated by banks are transformed into marketable asset-backed securities.

Also, private consumption has increased in line with the significant increase in personal income. Still, we face significant risks, which I will look in more detail in a moment. Those coming from abroad have to do with the world economic situation I just described; domestically, they relate to the possibility of an exacerbation of output and expenditure. Beyond these risks, in the baseline scenario that today we believe to be the most likely, the Chilean economy will resume growth in line with the trend, while inflation will gradually return to levels that are consistent with the target. Let me now describe this scenario and the risks we have identified. Macroeconomic scenario The macroeconomic scenario facing the Chilean economy has not changed significantly in the past several months. As I just said, Chile’s output, and especially domestic demand, has grown above expectations. Some progress has been made abroad, but the risks derived from the Eurozone crisis are still present. In this context, headline inflation has fluctuated substantially in recent months, due to one-time events associated with supply shocks. Core inflation – discounting foodstuffs and energy – has declined slightly to near 2 percent y-o-y. The Board, continuing with what has been the tone throughout the year, held the monetary policy interest rate at 5 percent. Domestic situation As of November, y-o-y CPI inflation was 2.1 percent, after rising to almost 3 percent in October (figure 1). Y-o-y growth in nominal wages has remained roughly constant in the 6% to 7% range, although with differences across sectors.