The way we handle this deterioration of their balance sheets will have major implications for the macro outlook both in the short and the medium run. Indeed more financial vulnerable firms tend to invest and hire less than firms with a robust financial position1. In extreme cases, the vulnerabilities of the corporate sector could lead to the closure of firms, a development which would adversely impact economic growth owing to the possible destruction of part of the productive system and the consequent job losses. At the same time, there are already signs that the pandemic may give rise to certain structural changes, although the full extent of these is, for the time being, difficult to know. It is crucial that these changes and this structural damage are identified promptly since economic policy cannot indefinitely sustain a sector that is set to undergo a structural reduction in its level of activity. Instead, it should aim to promote and support the adaptation of the productive system to the new realities and the efficient reassignment of resources among industries and firms. 1  See, for example, Myers, Stewart C. (1977): “Determinants of Corporate Borrowing,” Journal of Financial Economics, 5 (2), 147–175. Kalemli-Ozcan, Sebnem and Laeven, Luc A. and Moreno, David (2019): “Debt Overhang, Rollover Risk, and Corporate Investment: Evidence from the European Crisis,” ECB Working Paper No. 2241, Philippon, T. (2010): "Debt Overhang and Recapitalization in Closed and Open Economies," IMF Economic Review, Palgrave Macmillan; International Monetary Fund, vol. 58(1), pages 157-178, August.

Even with forward-looking inflation targeting, the central bank may need not only tolerate significant deviations of current inflation from the medium-term target but also to exercise a lot of judgment in assessing when deviations in expected inflation originated in the ER justify a change in the policy stance. Tolerance to ER-induced deviations in inflation is easier the higher the credibility of monetary policy. If medium-term inflation expectations remain anchored at the policy target level, the central bank can count on economic agents to help convergence afterwards. Building a record of credibility and reputation has been a product of a coordinated, persistent, and long-term commitment by the Central Bank of Chile to the best practices on transparency and independence. A responsible and countercyclical fiscal stance is an absolute requirement for consistency of the overall macroeconomic framework. Besides from softening cyclical fluctuations, fiscal credibility is an important ingredient of MP credibility, as it alleviates potential concerns of fiscal dominance behind MP decisions. Finally, all of the above may need to rely on substantial financial buffers, like moderate levels of indebtedness by all major economic agents; safe financial assets (sovereign wealth funds); well capitalized banks, and so on. So, building a reliable floating ER regime able to cushion the domestic economy from financial and commodity shocks takes much more than courage and a statutory decision. It should be supported by a sophisticated financial and institutional architecture. This is not easy to capture in attributebased scoring systems.