central bank of chile and bloomberg. figure 3 accumulated cpi variation by country ( percent ) japan colombia hungary peru brazil czech rep. malaysia mexico s. korea israel norway poland u. s. thailand u. k. sweden eurozone canada switzerland hong kong ( a ) between january 2007 and october 2008. south africa turkey chile indonesia mexico colombia hong kong brazil indonesia poland peru s. korea czech rep. turkey south africa sweden hungary norway israel eurozone u. k. canada switzerland japan thailand u. s. malaysia chile - 3 - 2 - 1 ( b ) between october 2008 and january / february 2009 ( * ). ( * ) for canada, hong kong, hungary, israel, japan, malaysia and u. k., data up to january 2009. for the rest, february 2009. sources : statistics bureaus of each country. figure 4 inflation and expectations ( annual change, percent ) - 3 cpi cpix - 3 cpix1 jul. jul. bi 1 in 1 bi 3 in 2 bi 5 in 5 jul. ees 1 year ees 2 years ( 1 ) breakeven inflation calculation based on swap contracts. ( 2 ) economic expectations survey conducted by the central bank of chile. sources : central bank of chile and national bureau of statistics ( ine ). figure 5 monetary policy rate, deposit rate, and forward rate ( percent ) jan. 08 may 08 180 - day prime deposit rate sep. 08 mpr jan. 09 6 - month forward rate source : central bank of chile. figure 6 gdp and domestic demand ( real annual change, percent ) - 5 - 10 gdp domestic demand private consumption gfcf source : central bank of chile. figure 7 cost of foreign banking credit for chile's residents ( percent ) libor 08 ii iii iv spread source : central bank of chile. figure 8 gdp and manufacturing production ( real annual change, percent ) china china india india mexico brazil chile chile u. s. u. s. russia eurozone eurozone mexico brazil u. k. u. k. s. korea s. korea japan - 6 japan - 4 - 2 ( a ) annual gdp change in gdp in 2008. q4 - 30 - 20 - 10 ( b ) average annual change in manufacturing output between october 2008 and january 2009. sources : central bank of chile, ceic data and central bank of china. figure 9 chile : total export volume and price ( annual change, percent ) - 15 - 15 - 30 - 30 volume price source : central

interest rate may raise incentives for carry trade and aggravate increases in asset prices. in order to avoid financial imbalances resulting from excessive and unjustified we could state that, while the united states had an interest rate lower to that suggested by a taylor rule ( as suggested by taylor, 2008 ), this was probably not the case in chile, although i do not know of any evidence for or against this hypothesis. according to ahrend et al. ( 2008 ), between 2000 and 2003, australia probably also had a rate below the one suggested by the taylor rule. increases of these prices, the first line of defense should always be macro - prudential financial regulation and a thorough assessment of systemic risks, rather than changing the monetary policy stance. 4 as i have already mentioned, a fast expansion of credit does not necessarily mean jeopardizing financial stability. what is indeed harmful, and may certainly foster the creation of bubbles, is an either implicit or explicit commitment to substantially ease monetary policy when asset prices fall, unless the financial system is actually believed to be under serious risk. in short, this abundant liquidity, induced by an expansionary monetary policy and an increase in savings among emerging economies, particularly in asia, has boosted a housing bubble. however, although it was a component of the imbalances which had built up before the outbreak of the crisis, it certainly was not the main cause ; rather, such main cause is more related to the functioning of the financial system. that is, with the same path of monetary policy and global balances of savings and investment, an adequate risk assessment system could have averted the crisis or, at least, reduced its very large current scope. evolution of inflation during most of 2008, concerns about the global economic scenario were split between how to tackle the first effects of the housing bubble burst, mainly affecting the developed world, and, how to deal with the significant increase in inflation. since the beginning of this process, in the first half of 2007, we argued that its origin was related to factors which had nothing to do with the domestic business cycle, such as prices of food and fuels at international markets and adverse climatic conditions which favored major rises in the cost of electric power. during said year, prices of non perishable foods rose by 15 % and prices of fruits and vegetables rose by over 30 %, as compared to annual 2 % average increases and 2 % average decreases for both categories in the 2000 - 2006 period, respectively