The relative dearth of such moves may help explain the lack of technological trickle-down to the long tail. Taken together, the evidence here points to a two-tailed labour market. The upper tail in-crowd attracts the most skilled managers and the best-connected boards, amplifying their strengths. And in-crowd workers swim mostly in the pool of in-crowd companies. By contrast, out-crowd companies in the lower tail have less-skilled managers, less connected boards and workers who swim largely in less productive company pools. This bifurcated labour market seems unlikely to support technological diffusion to the long tail. (d)  Institutional Infrastructure  There is a well-established school of thought linking improvements in the quantity and quality of institutions to rises in living standards. Countries with high-quality institutions tend, on average, to grow more rapidly and to have higher levels of productivity and living standards. Those without tend to be subject to larger and more frequent breakdowns in economic, financial and social order, which holds back significantly their growth, productivity and living standards. 42  Institutions matter. One of the channels through which institutions support growth is by nurturing investment and innovation. For example, upholding the rule of law and enforcing property rights is typically found to be crucial in supporting business investment and innovation. 43  Having those rights well-established reduces concerns among firms  that their assets might otherwise be expropriated, either by the state or another company. Security of 44  property rights encourages a mass flourishing of investment and entrepreneurship.

On the contrary, the significant contraction of domestic demand, in particular for imported durable goods and inventories, spontaneously and quickly undid the incipient external deficit of the second half of 2008 and interest rates in Chile dropped. The Chilean economy has continued to show a very solvent net external position. BIS Review 93/2009  3  Figure 2 CPI and selected inflation measures (annual change, percent) 0  10  8  8  6  6  4  4  2  2  0  0  -2  01  02  CPI  -2  Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09  CPIX  CPIX1  CPI minus foods and energy  Sources: National Statistics Bureau (INE) and Central Bank of Chile. As we have pointed out on earlier occasions, persistent movements of the exchange rate may have inflationary consequences that must be taken into account when deciding on the monetary impulse. Anyway, our floating regime admits intervening in exceptional cases, whenever an overreaction of the exchange rate is detected that is giving misleading signals to the financial markets. In addition, although there is no obvious misalignment of the current real exchange rate from its long-term fundamentals, the present inflationary scenario may accommodate a nominal depreciation that does not compromise our price stability objective. In fact, imported inflationary pressures influence medium-term inflation, so if the recent appreciation of the peso persists, inflationary prospects will certainly moderate, which, as I just stated, has implications on the conduct of monetary policy.