help guard against a much more serious disinflationary correction of financial imbalances later on? there are no easy answers to these questions, but we have to continue to think hard about them. the role of the exchange rate that hard thinking must equally be applied to what is, in effect, another class of asset prices. i am referring to the price of a country ’ s currency — the exchange rate. this is particularly true at times when we see large movements in exchange rates. so it is an issue that faces us all, given the recent sharp depreciation of the u. s. dollar against the canadian dollar, the euro, the pound, the australian dollar, and others. what does this movement mean for the bank of canada? as with other asset prices, the bank does not have a target level for the currency. its price is determined by the markets, and the floating exchange rate is an important part of our monetary policy system, as i mentioned earlier. thus, in setting monetary policy in the context of this system, we do take into account these movements, and what they tell us about demand and inflation. insofar as movements in the exchange rate do affect the prices of imported goods, we must take them into account because they bear directly on what we do target ; that is, the inflation rate. however, we have found in recent years that the passthrough from exchange rates to prices has been less pronounced than in the past. we also try to ascertain the primary causes of the movements in exchange rates, and whether these movements are giving any information about factors that are affecting real economic performance. to the extent that movements in the canadian dollar reflect fundamental factors at work in the canadian economy, such as strong economic performance or higher prices and stronger demand for non - energy commodities, then we clearly need to take these into account. * * * * * let me close by reiterating that aiming for low, stable, and predictable inflation is a crucial component of the oecd policy framework, along with sound fiscal policy, structural reform, and trade liberalization. in my view, the debate about the role of asset prices in monetary policy is not an argument for moving away from inflation targeting. but i hope that my discussion of the potential role of asset prices in monetary policy underscores the idea that we should never stop looking for ways to improve our economic policy framework, so that we can continue to promote sustainable economic growth and prosperity.

jose de gregorio : imf challenges and policies for the global economy statement by mr jose de gregorio, governor of the central bank of chile, speaking on behalf of the southern cone countries of latin america international monetary and financial committee meeting, washington dc, 24 september 2011. * * * in the past few months, the near - term prospects for the global economy have worsened significantly and financial risks have increased. what some time ago was a modest, albeit unbalanced recovery, risks turning into a new economic downturn, particularly in major advanced economies ( aes ). this new scenario poses urgent challenges to the imf and to the membership in terms of decisive political and policy responses to solve fundamental weaknesses and mitigate the negative impact of this new downturn. against this backdrop, the fund ’ s surveillance capacities, and a well - functioning international monetary system ( ims ), are being and will again be put to the test only a couple of years after the 2008 – 2009 great recession and financial crisis. i. the immediate challenges ahead and the fund ’ s policy advice two forces are influencing each other and weighing down on economic prospects in major advanced economies. on the one hand, uncertainty and volatility have increased to their highest levels since october 2008, constraining credit and leading to more cautious behavior by households and financial institutions. on the other hand, fully credible medium - term fiscal consolidation in those economies with high debt burdens is still lacking, prompting even higher sovereign spreads and more calls for short - term fiscal retrenchment when private demand has yet to recover to its pre - crisis levels. the policy debate surrounding the appropriate fiscal and monetary policy mix, as well as the assessment of public debt sustainability, have become muddled. it would be paradoxical that only a few years after witnessing an example of successful global policy coordination and sound financial policies, which staved off another great depression, the lessons learned were to be ignored. the fund can provide guidance and leadership on a number of issues, and the membership should heed its advice. in particular, we would like to note that : the political will to achieve meaningful short - term fiscal adjustment is more present in those core aes where public sector financing conditions are benefiting the most from flight to quality, whereas in cases of more acute solvency concerns, and thus higher spreads, adjustment fatigue is dangerously settling in. the negative growth implications of further short - term fiscal retrenchment have not been given proper regard