sources : central bank of chile and bloomberg. bis central bankers ’ speeches figure 5 gross domestic product ( percent ) - 3 - 3 - 6 - 6 annual change quarterly change ( * ) ( * ) seasonally - adjusted series. source : central bank of chile. figure 6 monetary policy rate and expectations ( percent ) forward mp report dec. 10 fos 1h dec. 10 forward 11. jan. 11 mpr ees jan. 11 fos 1h jan. 11 source : central bank of chile. bis central bankers ’ speeches figure 7 international reserves to gdp ( percent ) brazil colombia israel malaysia mexico peru thailand chile 2010 ( * ) ( * ) growth forecast and last available data of international reserves as from the imf. for chile, gdp growth forecast from december 2010 monetary policy report. sources : central bank of chile and international monetary fund. bis central bankers ’ speeches

got pneumonia ; today it is the other way around, our countries suffering just a cold while the developed world is with pneumonia ( figure 2 ). this comparatively good performance is no reason for complacency, as in our countries it is more urgent to avoid large cycles that affect disproportionately the poorest members of society, especially those most detached from the social safety nets. today, i intend to address two very important aspects of the discussion about monetary and financial policy making. first i want to refer to the origin of this financial crisis and its linkage with monetary policy. some arguments point out that the current crisis was originated by monetary policy mistakes, particularly in the united states, where low interest rates are blamed for the housing bubble and subsequent financial meltdown. some have even claimed that inflation targeting regimes are inadequate, because monetary policy should also aim at controlling asset price inflation. and this is precisely the second point in my presentation, that is, whether interest rates should react to asset price movements or not, and what is the role played by the exchange rate. to sum up, and insisting on a point i have made before, there are many cases of countries that lowered their interest rates substantially without triggering any housing bubbles. there are also cases of countries with very low interest rates where home prices soared, but still their financial systems did not end up in a financial disaster like they did in some developed economies. this crisis, or at least the magnitude it has reached, is the result of financial fragility and we, in latin america, are well aware that when a cyclical downturn is combined with a financial crisis, the impact is magnified. central banks generally have two objectives : price - level stability and financial stability. recent history reminds us that we cannot pursue both with one single instrument, the interest rate. we also need a regulatory framework that ensures financial stability, a feature that countries like chile and colombia have succeeded in preserving in the actual juncture. the causes of the crisis : was it monetary policy or was it financial fragility? the argument attributing a leading role in the current crisis to monetary policy claims that low interest rates combined with large current account surpluses in emerging economies, particularly asian and oil - exporting ones, created an abundance of liquidity that triggered excessive increases in asset prices ( bubbles ). this was particularly important in the value of real estate assets. when the bubble burst, the crisis erupted. then, this argument claims that