on an increase in non - mining and non - residential investment ( mainly machinery and equipment ). while mining investment will eventually return to positive territory during 2018, the gradual adjustment in residential investment is expected to continue during the following quarters ( figure 5 ). figure 5 real annual contribution to gfcf ( * ) ( percentage points ) other non - mining - 4 - 4 housing - 8 - 8 mining - 12 - 12 - 16 - 16 ( * ) for sectoral gfcf, variations of the 2008 benchmark compilation are used. since total gfcf is expressed using the 2013 benchmark compilation, annual variation of other gfcf is adjusted for consistency purposes. estimations for 2015 and 2016 based on available information from listed companies ( fecu ), capital goods corporation surveys, chilean chamber of construction and national accounts by institutional sector. for 2017 and 2018, central bank projection models and sectoral sources are used, including investment plans and capital goods corporation surveys. source : central bank of chile. 9. the labor market continues to gradually adjust and could become a drag on consumption. wage employment declined by 2 % annually in the moving quarter that ended in february, and annual wage growth moderated. in addition, the number of hours worked declined, at a time when an increasing number of workers suggest their workdays are shorter than desired. in any case, this has not translated into an increase in open unemployment, due to flexibility in the chilean labor market : the unemployment rate is still low from an historic perspective. in fact, despite being more precarious, self - employment has acted as a significant buffer to the loss of dynamism in wage employment ( figure 6 ). figure 6 job creation by category wages ( * ) ( annual change, percent ) ( annual change, percent ) wage 15 8 self - employment 7 nominal 7 - 3 - 5 - 6 - 10 0 real ( * ) both the nominal and the real correspond to the average of the annual variation of irem and cmo. source : national statistics institute ( ine ). 10. domestic financial conditions remain favorable, particularly in terms of interest rates. notwithstanding, credit volumes have decelerated with respect to previous years, as a result of overall subdued demand. despite some increase in recent data, arrears ratios are still low, a clear sign that slower growth has not affected the financial health of companies and households. 11. the evolution of the local stock market has caught some attention lately, since the

what to expect from the fed ’ s monetary policy normalization? 1 sebastian claro vice ‐ governor, central bank of chile i would like to start thanking the organizers for this invitation. let me start with a disclaimer. next monday, april 3rd, the board of the central bank of chile will present its inflation report to the senate. therefore, i will not be able in this occasion to offer a detailed discussion on the macroeconomic situation and perspectives in chile, which will be described in detailed in the report. rather, i have decided to focus on a broader issue that is relevant for chile and the region in the current scenario. during 2017, we will finally witness the process of monetary policy normalization in the united states. after almost 8 years keeping the federal funds rates essentially at zero, the federal reserve has started a gradual process of interest rate hikes. this is good news. fundamentally, the normalization of monetary policy is the natural consequence of a normalization of the us economy after the global financial crises. a normal us economy is a positive phenomenon for the world economy. however, this transition period may become bumpy. indeed, previous episodes of rate hikes by the federal reserve have not been smooth at all for emerging economies. the most obvious of these examples is the debt crisis in the early 1980s. on top of a series of macroeconomic imbalances in many latin american countries, the sharp raise in interest rates generated a strong reversal in capital flows and pressure on fx markets on the region that induced a collapse in financial markets and activity across countries. since the early 1990s, we can identify two main periods of interest rates rises in the united states, as seen in figure 1. the first one started in february 1994, and it comprised a hike of 300 bp in almost a year. the second one took place a decade later when, after a few quarters of the then historically ‐ low rates, the fed started a process of rate normalization in june 2004, increasing almost 450 bp in about two years. 2 for the sake of this presentation, i want to offer a simple comparison on these two episodes, which in some dimensions were very similar. in particular, the cyclical position of the us economy was arguably very similar in both occasions, and the process of monetary policy normalization is pretty comparable. however, the performance of emerging markets in these two episodes was very different. indeed, overall, the process of fed funds increases in early 1994 was followed by large difficulties in developing