an orderly retreat which inevitably relies on increasing discount rates at which future income streams are priced. this is particular true if some projects were only funded to begin with due to the exceptionally low interest rate environment, and / or if such investments were intermediated by fund managers who care not only about income streams, but also ( and mostly ) about short - term price fluctuations. here we will have an interesting discussion including papers by stephen morris, michael woodford, and gustavo suarez, which will enlighten us about the theoretical aspects to keep in mind when evaluating the broader consequences of asset purchase programs, as well as the empirical evidence regarding the effects of the risk - taking channel on the quality of loans originated. but this is not only a conference about monetary policy in developed economies. indeed, securities from emerging markets fit naturally into the category of riskier assets that are expected to be affected by investors ’ search for yield in an environment of low interest rates, as has been documented by a growing and exciting empirical literature. this will be the topic bis central bankers ’ speeches of the third and final session of the conference, and will include presentations by helene rey, simon gilchrist, and elias albagli. this topic is of particular concern for central bankers and policymakers in latam and other emerging regions, which have good reasons to be worried with the consequences of us monetary normalization in an environment where further exchange rate pass - through will put increasing pressure on our inflation targets, while at the same time interest rate pass - through puts increased pressure on subpar levels of growth. before giving an official start to our nineteenth annual conference, let me end by stressing a related but perhaps less appreciated aspect by which the events of the last few years have changed, i believe in both a fundamental and desirable manner, the way monetary policy is handled and communicated. and if you permit me, i will illustrate the point using the recent chilean experience. in chile, although economic conditions have been far less complex than in developed countries, we have also experimented with unconventional policies... and frankly, i think the experience has been successful. first, in response to the global financial crisis of 2008 the bank increased the supply of liquidity in pesos and dollars – through repos and swaps –, augmented the extensions of the swap program, and broadened the range of eligible collaterals. they were all measures designed to align market rates with the monetary policy rate and to mitigate foreign currency liquidity tensions. forward guidance was also

compensation for risk that must be offered to an investor to account for the fact that longer maturity instruments are more volatile ( have higher duration ) than short - term rates, let ’ s call it the term premium channel. the third is simply default risk. in essence, all policy actions by the fed, the ecb, the banks of japan, england, canada, and of many small open economies in the last 6 years have been about affecting long - term rates by influencing one, and often times more, of these interest rate components. take the case of forward guidance. when nominal rates reached the zlb, and particularly due to the low inflation environments, traditional monetary policy became very constrained – fully constrained by definition, one might say, given the impossibility of lowering short term rates any further. however, to the extent that one can credibly influence the expected path of future monetary policy actions, risk - neutral rates at different horizons can be lowered, perhaps even significantly so. however, as pointed out by mike woodford in an influential paper presented at jackson hole a few years ago, to truly make a dent on rates with this strategy, central bankers were likely to run into a temporal - inconsistency problem. this problem is basically that in the event that long - term rates can be reduced enough to jump - start the economy, the expost optimal policy stance would be inconsistent with the one promised in the midst of stagnation. quoting from his paper : “ the future policy that one wishes for people to anticipate is one that the central bank will not have a motive to implement later, if it makes its decisions then in a purely forward - looking way, on the basis of its usual stabilization objectives. ” ( end bis central bankers ’ speeches quote ) this does seem like a hard conundrum to get away from, and probably limits the traction of this type of tool as a strong driver of longer - term rates. partly due to these limitations, central banks have also directly tackled the term premium by purchasing large quantities of long - term assets. the idea is that by removing some duration from the fixed income markets, private investors ’ aggregate exposure to interest rate risk is diminished, leading to a lower required compensation for bearing such risk. of course, this logic relies on some form of imperfections and / or market segmentation, but there is by now significant evidence, including some excellent papers to be presented in this conference, that qe has had a measurable impact