the need to strengthen the international liquidity position. to avoid conflicts with price stability, the intervention that was begun in april has been implemented mechanically and transparently in order to orient monetary policy in consistency with the required convergence of inflation to the target. it is hard to find a financial crisis as severe as this one since the great depression. still, its real consequences are still much milder than those of other episodes, including of course the great depression and even the great inflation of the 1970s. we have learned two lessons from these occurrences and which are clearly present in the acts and statements from central bankers around the world. one is that central banks are the lenders of last resort and must supply the necessary liquidity so that financial markets can operate, even in critical times. the other is that inflation must be fought with determination and letting it settle down and stay in the economy is very costly. different perceptions and assessments can alter the short - term course of monetary policy, so flexibility and realism are necessary to timely correct the route, and this has been happening around the world and in chile in particular. but not only have we learned from past errors, like the need to have good economic policies ; the world is also better. the progress of the past few decades in technology, flexibility, international integration, transparency and accountability, among other factors, make this world a safer place. in chile we have a policy framework that grants us a good position like no other before, to sail through troubled waters. regarding the world economy, there are big risks. the chilean inflationary problem stems from international price rises, although recently we have seen the harmful effects of propagation. in the baseline scenario, the world will post strong growth in coming years, driven to a large extent by emerging economies, particularly china and india. one cannot rule out a deeper and longer lasting slowdown of industrialized countries than assumed in the baseline projection. in a weaker economic scenario, commodity prices should decline. a drop in the oil price would come as a relief for the world economy. also, a weaker world economy could affect chile ’ s gdp growth directly. these forces would pull down inflation. however, the inflationary dynamics and the convergence of inflation to the target cannot be based on a weak world scenario. this is a possibility and, as we always do, we will act with sufficient flexibility and realism to incorporate international developments and prospects in the analysis that underlies our monetary policy decisions. in these moments, inflation risks and dynamics do not allow

if capacity expands without generating price pressures. but the demand for oil, steel, minerals, etc., recorded strong increases, which pushed prices up. the supply has not responded to demand with the same vigor. the empirical literature has been critical in this point, but a recent work by auer and fischer ( 2008 ) shows that the producer price index of the united states was two percentage points less due to cheap imports from developing economies. a case worth highlighting is foods. some of them absorbed the demand increase due to economic growth with supply increases, but then a new source of demand appeared : bio fuels, which have further strained the prices of grains. another factor that, according to some analysts, has been important in price hikes has been investor involvement, demanding commodities as another asset in their portfolios. but if investors were buying to resell with a margin, this would translate into an increase in inventories, which it has not. accordingly, the purchases of futures by some agents go hand in hand with the sale of futures by others, and are normally the counterpart of hedging operations. on the other hand, while investors ’ positions have risen substantially in the commodities markets, they still share but a small fraction of the market. overall, one cannot rule out that investors ’ buy and sell strategies will have an effect on the high short - run volatility of prices, but it is difficult to blame on them the high and persistent levels we see today. the worst nightmare in terms of high inflation and low output has been the price of oil, which has broken all the records. after standing at us $ 12 per barrel in 1999 as a consequence of the asian crisis, it started climbing throughout the 2000s in tandem with world growth. by mid - 2006, when the oil price was approaching us $ 70 per barrel, the question was why the world economy was so insensitive to it. researchers tried to explain why such a heavy price increase had been so mild on inflation and output ( de gregorio et al., 2007 ; blanchard and gali, 2007 ). fingers pointed at the usual suspects : good monetary policies and less intensive use of oil around the world. in sum, the world economy was more insensitive to the oil price. however, if oil demand continued to rise without a corresponding increase in supply, a large enough price rise was necessary to begin having an effect on the demand. the levels of a couple of years ago were not enough to restrain the demand,