A commonly recurring cyclical pattern is that productivity increases more quickly at the beginning of an economic upswing. Companies then normally have the capacity to increase their production with the existing resources. The need for resources then gradually increases and the companies begin to recruit new staff. Productivity growth usually falls then. When the economic cycle enters a downturn phase, productivity develops even more slowly. Another way of describing this cyclical pattern is to assume that the economy is exposed to technological shocks. This is how productivity is modelled in so-called real business cycle models. This is the case in Ramses, for instance, which is the general equilibrium model used by the Riksbank. But also by factors such as globalisation and new technology However, productivity growth did not fall back, but remained high in the latter half of the 1990s. There was only a marked reduction in connection with the bursting of the IT bubble in 2000 and in the following year productivity did not increase at all. Since then productivity has increased rapidly during the 2000s up to last year (see Figure 3). During the economic upturn in recent years it took longer before employment accelerated. Most indications are therefore that the strong productivity growth in recent years was not solely a cyclical phenomenon – it was also due to structural factors such as globalisation, use of information technology (IT), deregulation of product markets and innovations. Globalisation sharpens competition and pushes up productivity growth through a higher degree of specialisation and use of comparative advantages.

Additionally, we are confronting new risks, in the face of international tensions related to Iran’s nuclear situation and its impact on the oil market. These sources of uncertainty are beyond our control. Therefore, our role as policymakers in emerging countries is to preserve flexibility and space for policies that will enable us to respond to and buffer the financial and real effects that those risks pose on our economies. Over the last years we have gained credibility, flexibility and space to implement a macroeconomic and financial policy framework that will help us smooth out the economic cycle. This framework rests on four pillars. First, monetary policy management is based on a flexible inflation-targeting regime, conducted by an autonomous central bank and supported by a floating exchange rate system. Second, a fiscal policy that is accountable and predictable thanks to a structural balance rule. The significant amount of savings accumulated during the run-up of copper prices was a crucial factor in bolstering the resilience of the Chilean economy and in providing a countercyclical fiscal boost. Third, a high degree of commercial and financial integration with the rest of the world. Finally, a sound financial system, with globally integrated, well capitalized, and adequately-regulated banks. These elements allowed us to be less affected by the Great Recession than by previous episodes. In Chile, the effects of the world slowdown of the second half of 2011 and the financial turbulences coming from Europe have so far been limited.