response, together with an expansionary fiscal policy, facilitated a speedy adjustment. after only one year of negative annual growth in 2009, the economy was able to sustain growth rates above 4 percent in the years that followed. the inflation rate fell well below the target range for about a year, but inflation expectations remained anchored at the 3 percent target in the two - year horizon. undoubtedly, this is the strongest countercyclical macroeconomic policy response we have ever articulated, proportional to the magnitude of the shock, but our monetary policy framework has also been useful to face subsequent challenges at home and abroad, like the end of the commodity price boom in 2013 - 2014, delivering lower price and output volatility. in each of these episodes, anchored inflation expectations, automatic fiscal stabilizers, foreign exchange hedging, and a sound financial sector have contributed to provide monetary policy with sufficient room for maneuver. but it is crucial to remark that these factors are not exogenous to macroeconomic policy. they were nurtured by a consistent macro policy framework built and maintained in the last two decades. the challenge for central banks the chilean experience illustrates that for forward inflation targeting to work, central banks need to develop the right set of tools — data sources, models and judgment — to formulate and communicate a policy path that is coherent with such convergence. as the local and world economy evolve, the relevance of all these tools needs to be kept constantly in check. over time, economies are subject to major changes, especially in the case of emerging economies, and this may alter well - established relationships. the current focus in the relevance of the phillips curve and price dynamics is a good example of this. but the extent to which structural changes involve a permanent change in the responsiveness of prices to output gaps or one - off changes delaying inflationary responses for some time is equally relevant, especially for policymaking. this also applies to structural changes that are especially relevant for emerging countries, like demographic transition or the lengthening of international value chains. central bank of chile october 2018 the quantity and quality of data available to make monetary policy decisions may also change substantially over time. the traditional dominance of regular economic surveys is increasingly challenged by growing administrative datasets and big data. in this regard one should never forget that data is only an instrument to capture true economic behavior. from a policymaking perspective, data collection, processing and statistical methods are a way to produce evidence for better decision making. a central bank that operates in a forward

central bank of chile october 2018 central bank of chile ’ s twenty - second annual conference : “ changing inflation dynamics, evolving monetary policy ” opening remarks by mario marcel, governor of the central bank of chile october 25, 2018 – santiago, chile welcome remarks good morning everybody and welcome to the twenty - second annual conference of the central bank of chile. it is a pleasure to host this event that every year gives us the opportunity to reflect and discuss about issues that have direct implications on our work as central bankers and stimulate the related academic agenda. i am looking forward to active discussions today and tomorrow on this year ’ s conference theme : changing inflation dynamics and its implications for monetary policy. this conference is being followed online via live streaming on our website. inflation dynamics and monetary policy in recent years the last ten years have been an extraordinary time for macroeconomics. the deepest financial crisis since the great depression was followed by an unprecedented bold, coordinated, unorthodox and persistent response by central banks in advanced countries. in all, a decade in which the world economy stood a long way from normal and, as it depended so much on emergency support, it was not easy to detect how much the economy was changing underneath. so it is perhaps not that surprising that once the same central banks began to envisage a gradual, cautious and well communicated approach to monetary policy normalization, some challenges appeared on the road. true, some of them had to do with political change and policy uncertainty to the heart of the developed world, but on top of that, major empirical and theoretical puzzles are challenging central tenets of monetary policy. in particular, inflation appears not to be responding to monetary policy as expected in advanced economies. despite record - low interest rates over many years and massive liquidity injections by central banks through asset purchase programs, inflation has not picked up as expected. explaining the apparent unresponsiveness of inflation has become a theoretical and empirical challenge that has drawn great attention from academia and policymakers in the last couple of years. inflation dynamics and the way they interact with other economic variables are, of course, crucially important to central banks that have price stability as their core mandate. most of them currently deliver on this mandate under a forward inflation targeting framework, whereby the stance of monetary policy seeks to achieve convergence of forecasted inflation to the target over a medium - term horizon. this prevents central banks from having to respond to short - term price volatility, but if inflation does not respond to