jose de gregorio : financial stability, monetary policy and central banking introductory speech by mr jose de gregorio, governor of the central bank of chile, to the 12th annual conference of the central bank of chile “ financial stability, monetary policy and central banking ”, santiago, 6 november 2008. * * * welcome to this 12th conference of the central bank of chile, entitled financial stability, monetary policy and central banking, which will gather a select group of central bankers, experts and academics today and tomorrow. i cannot open this conference without sending my most heartfelt condolences to klaus schmidt - hebbel, our former director of economic research and creator of this series of conferences, and to all his family, on behalf of the central bank of chile and myself, for the terrible loss of his beloved son diego. to him we dedicate these two days'work. like every year since 1997, we are looking forward to two days of intensive work with discussions of the highest technical level, which usually have opened areas for us to develop our research agenda with rigor and relevance, in an ever more complex world. this version of our annual conference finds us in the midst of severe global financial crisis. after the asian crisis, many of us wondered about where the next blow would come from and what shape it would take. the academic literature has analyzed foreign exchange and financial crises in small, open economies. first there were the first - generation fiscal and currency crises, which gave way to second - generation crises such as the one endured by the european monetary system in the early 1990s, and finally to third - generation ones occurring in asia. all of them featured a variety of origins and transmission mechanisms. now we are facing an international financial episode that many concur in labeling as the worst since the great depression, which originated in the developed economies, particularly the united states. its initial symptoms are known : rapid financial innovation, credit expansion and asset price bubble. its progression and repercussions, however, are unprecedented. on the other hand, our better understanding of the distortions that bad macroeconomic and financial policies can trigger, has made emerging economies in general, and chile in particular, build a strong position to deal with a very weak international scenario. there is no better moment than this to get together and exchange our visions and opinions, and draw the first lessons from the events unfolding in the world economy. i want to begin with some comments on the present crisis. this episode has several unprecedented aspects

jose de gregorio : inflation targeting and financial crises speech by mr jose de gregorio, governor of the central bank of chile, at the seminar on financial crises seminario internacional de crisis financieras, organized by banco de la republica de colombia and the fondo de garantias de instituciones financieras de colombia, bogota, 28 may 2009. i thank the valuable comments and insights of luis felipe cespedes, pablo garcia, luis opazo and enrique orellana. * * * thank you so much for this invitation. it is an honor to return after so many years to speak at a conference organized by banco de la republica and fogafin. the subject this time around, financial crises, is particularly timely, with the world struggling through a crisis whose effects are still difficult to predict and that has propagated through the world with unprecedented strength and synchrony ( figure 1 ). macroeconomic policies face major challenges in trying to cushion the effects of a crisis. its origin, magnitude and degree of propagation make stabilizing the economy a particularly complex task. high uncertainty and, in some cases, poor functioning of key aspects such as credit markets, have affected the monetary policy transmission channels in a number of countries. the current crisis is providing a unique opportunity to continue fostering the design of economic policy frameworks that permit us to react to different shocks in the best way possible while at the same time reducing the vulnerability of our economies. the current situation raises many questions, some of which we had already been discussing at the theoretical level. meanwhile, it contributes the necessary evidence to dig into such questions more deeply. although we must detect the flaws and fix them to prevent episodes like this to happen again, we must also identify what has operated properly and should continue to be part of our macroeconomic and financial policies. in particular, a proposition that permeates my presentation today is that the current turmoils have shown the advantages of inflation targeting regimes committed credibly with an inflation anchor. as the crisis we are going through keeps reminding us, price - level stability must occur hand in hand with proper regulation of the financial system. our region has learned these lessons the hard way, after severe crises that were created when we lost sight of macroeconomic and financial stability. in this juncture, the region has withstood like never before the effects of the international crisis. in the past, when the world got a cold, the region