those countries that started this process with fragile fiscal situations, that is, with high levels of public debt. furthermore, in europe, the existence of a common currency has introduced an extra constraint to the adjustment process. the foregoing shows how important it is to preserve macroeconomic balances and to act on a timely basis. the latest events in europe demonstrate how a weak fiscal situation combined with a couple of years of relaxation, however warranted, may damage the economy ’ s financial position and compromise its recovery. the fiscal adjustments required in europe, some very drastic and with risky implications on output, are living proof of what happens when adjustments and the withdrawal of stimulus measures are delayed. hence the importance of conducting this process gradually in order to ensure a strong and uninterrupted recovery. this also applies to monetary policy in chile. to the extent that the withdrawal of the monetary stimulus is done at a gradual pace, in anticipation to the manifestation of inflation deviations, it will be possible to ensure stable and sustained growth of the chilean economy. any unnecessary postponement of the adjustment will only risk aggravating the costs in terms of output and employment in the future. monetary policy played a key role in mitigating the severe effects of the international crisis over the last year. it is still playing an important role in this phase of recovery. however, we must prevent inflationary pressures from incubating that would jeopardize the achievement of the inflation target. today, monetary policy must allow that the foundations for the reconstruction after the earthquake and the recovery from last year ’ s recession to be strong and sustainable, within a context of low, stable inflation. as i have said on several occasions, this is the main contribution of the central bank of chile to growth and stability of the chilean economy. thank you very much. figure 1 real interest rate gap : real mpr minus indicated neutral interest rate ( percent ) monetary policy interest rate ( mpr ) ( percent ) - 3 - 3 - 6 - 6 rate implicit in cbc's forecasting models rate derived from consumptionbased model source : central bank of chile. figure 2 commodities prices ( indexes, 02 / 01 / 2006 = 100 ) stock - market volatility ( percent ) developed markets emerging markets copper wti oil ( 1 ) vix volatility index. ( 2 ) estimated volatility of msci index in dollars. sources : bloomberg and morgan stanley capital international. figure 3 currency parities ( index,

globalization and strong growth of the world economy have opened great development opportunities for the chilean economy, but at the same time have increased the risks of shocks coming from abroad. the natural question is what should be the policy regime that most adequately could maximize the benefits of interacting with a world that becomes ever more integrated. here, as elsewhere, the best policy is prudence. this includes macroeconomic policies and institutions that contribute to stability, to keeping a sound financial system and easing the adjustments to less favorable world scenarios. chile ’ s present policy regime ( i. e., mature inflation targeting regime with floating exchange rate, fiscal policy whereby government spending is tied to the public sector ’ s permanent income, thus enhancing its solvency before transitory terms of trade improvements, and an efficient system to regulate and supervise the baking system ) increases resilience and facilitates the adjustment of the chilean economy to less favorable external scenarios. this policy framework permits to prevent episodes of unsustainable expansion and crises that accompanied terms of trade cycles in the past. in particular, with inflation expectations well anchored around 3 %, the central bank of chile can apply countercyclical monetary policy. furthermore, the flexible exchange rate helps to make foreign exchange adjustment if and when circumstances so warrant. final remarks the world economy is headed toward completing its most dynamic five - year period in over thirty years. strong growth in the world and in china and india are driving a very good terms of trade scenario, together with good access to our products in world markets. thanks to its openness and to its macroeconomic policy framework, chile has reaped the benefits of this good scenario both in the sense of reaching average growth close to the trend and in accumulating resources that may permit to prevent a real appreciation while ensuring funding for public spending, should the terms of trade deteriorate. this policy framework permits to prevent episodes of unsustainable expansion and crises that came with terms of trade cycles in the past.