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

- 4 - 4 - 4 dec. 2011 report sep. 2011 report ( * ) gray area, as from fourth quarter of 2011, shows forecast. sources : central bank of chile and national statistics institute ( ine ). figure 8 nominal exchange rate ( index, 1 jan 2000 - 19 dec 2011 = 100 ) australia japan switzerland czech rep. n. zealand china brazil thailand canada peru colombia norway sweden malaysia philippines eurozone chile israel poland s. korea hungary u. k. south africa u. s. russia india mexico range average july spot ( 1 ) the range shows maximum and minimum values of the currency during indicated period. considers broad index. ( 3 ) at 27 junly. sources : central bank of chile and bloomberg. bis central bankers ’ speeches figure 9 actual and expected mpr ( percent ) mpr fos, first half december 2011 forward, forward december report 2011 ipom diciembre eee, december 2011 source : central bank of chile. figure 10 total corporate debt ( % of gdp ) 11. i 11. ii banks'external debt external bonds debt external non - financial debt bank debt factoring & leasing bonds 11. iii ( 1 ) total debt chilean non - financial firms. ( 2 ) fdi - related loans and commercial credits. ( 3 ) commercial & comex. ( 4 ) corporate bonds ( except codelco ), securitized bonds with non - banking underlying origin and marketable securities. source : central bank of chile based on data from achef, sbif, and svs. bis central bankers ’ speeches figure 11 households'banking risk indicators total borrowing ( percent ) past - due - portfolio indices ( percentage of loans ) 1, 6 1, 6 1, 4 1, 4 1, 2 1, 2 1, 0 1, 0 0, 8 0, 8 0, 6 0, 6 0, 4 0, 4 06 07 08 09 10 11 over wage mass over disposable income ( rdi ) mortgage consumer ( 1 ) preliminary data for third - quarter 2011 disposable income. ( 2 ) dotted lines show effective index average. source : central bank of chile based on sbif data. figure 12 cost of short - term external financing of resident banks ( basis points ; months ) jan. 08 oct. 08 spread spread jul. 09 apr. 10 jan. 11 oct. 11 maturity ( 1 ) non - related bank loans, at variable rate. gray area shows interval between percentiles 5 and 95