Transmission channels of the international crisis to the domestic economy Let me now review the various channels whereby we have been affected by the international crisis, which provides the necessary context to explain our policy decisions and the projections on our economy contained in this Report. The complex moment for the world economy has prompted, on one hand, a sharp fall in world demand for our exports; growth projections for Chile’s trading partners for the two-year period 2009-2010 went from an average of 1.6 percent in January to 0.3 percent in the baseline scenario in this Report, affecting the prices of the products we sell to the world. The terms of trade, as we had already anticipated in January, have seen a steep fall, hurting national disposable income. Nevertheless, the drop in commodity prices has had an immediate positive effect on household income, particularly through oil and other imported goods. 2  BIS Review 65/2009  Although some specific sectors are having difficulties placing their products abroad, the volume of Chilean exports, largely linked to natural resources, has not declined significantly. This reveals that price adjustments have permitted them to continue to be present in markets around the world. This is quite different from the realities of some manufactured goods exporters that have experienced sharp, severe and widespread downfalls. The figures show that the impact in terms of economic deceleration during the fourth quarter of last year was much more severe in those economies whose export basket is tilted towards durables (Figure 5).

Distinguishing features such as shallow and narrow financial markets, limited number of financial instruments, particular behavioural traits of economic agents and distinctive economic and financial memories, can reveal non-traditional behaviour and interesting phenomena that do not appear and, are, therefore, not addressed in research findings from developed markets. The identification of these particular characteristics and their implications for research findings might be good enough to spark the interest of economic journals and economic conferences to bring these characteristics to the attention of the research community and enrich mainstream economic theory. Just to illustrate a few interesting cases, I would like to remind you that the development of economic and financial markets in response to Bank of Albania policies has been weak and sometimes puzzling, making it difficult to interpret using mainstream economic models. The desire for unhedged borrowers to borrow in foreign currency, the reduced efficiency of transmission mechanisms in the presence of central bank credibility, the potential role of informal and parallel markets and informal economic activity, are some examples of interesting traits of economic behaviour. Several authors have been intrigued by such developments. Hence, they have conducted extensive research on these phenomenon in similar emerging and developing economies, which have later seen the light of publication. Good examples are found in the research work done by the national bank of Austria (OeNB) on the level of euroization in the region, with interesting results that have helped authorities but have also increased the interest of other institutions and academics in euroization issues.