rodrigo vergara : the monetary policy report and the financial stability report presentation by mr rodrigo vergara, governor of the central bank of chile, before the finance commission of the honorable senate of the republic, santiago de chile, 3 december 2013. * * * the monetary policy report of december 2013 and the financial stability report of the second half of 2013 can be found at http : / / www. bcentral. cl. introduction mr. president of the senate ’ s finance commission, senator andres zaldivar, senators members of this commission, ladies and gentlemen. i am grateful for your invitation to present the vision of the central bank ’ s board on the recent macroeconomic and financial developments, its outlook and implications on monetary and financial policy. this vision is contained in detail in our december monetary policy report and our second - half financial stability report we are presenting now. the macroeconomic scenario has evolved along the trends described in the latest monetary policy reports. in the external scenario, growth is more balanced between developed and emerging economies than it was before the subprime crisis hit. international financial conditions are steadily normalizing, while the terms of trade are declining and approaching their trend values. in this scenario, the chilean economy will receive a milder boost from abroad than we saw in recent years. the less expansionary monetary policies in the developed world will be coupled with a rebound in developed economies that will favor not only these countries but the world economy at large. certainly, some countries have more reasons to worry than others about these adjustments in the world economy, because of their external and domestic vulnerabilities. meanwhile, the past and present volatility of the world will continue to affect our economy, but, while we are certainly not immune to what happens outside our borders, we feel we are on a good stand to deal with this transition. at home, output and demand are gradually decelerating and inflation is still low. our projections, which i will be reviewing shortly, indicate that in the short term the chilean economy will continue to expand somewhat below trend, affected by the normalization of the mining investment cycle and labor market conditions. we thus estimate a 4. 2 percent growth for this year and a 3. 75 to 4. 75 percent range for next. this 2014 forecast range is slightly less than what we were expecting in september. although these growth rates represent a slowdown from previous years, we see no obstacles ahead that could prevent our economy from resuming growth at closer

46 % of cases, turnover does not come with wage improvements. this phenomenon is more present amont high - turnover, low - income workers. those staying in their jobs longer have significantly greater wage gains over time. in the long term, this phenomenon links wider wage inequalities with slower productivity growth, a topic that merits a more in - depth examination. the study goes on to review how the chilean labor market responds to economic fluctuations ( table 5 ). the analysis reveals that, in general, there are multiple margins for adjustment that allow to cushion macroeconomic shocks and moderate the effect on employment that would exist absent those margins. these include changes in the composition betwee salaried and self employment, changes in participation rates, high turnover and rapid transitions between salaried jobs, the creation of jobs in new firms, and wage flexibility in hired work. at the same time, evidence has it that the costs associated to such adjustment, both for the workers and for the economy ’ s aggregate productivity, can be significant. the results presented also have implications on how the shocks hitting the economy can affect the evolution of wages and inflationary pressures, information that is of particular importance for monetary policy. thus, despite the labor market ’ s capacity for adjustment, the weak periods entail important costs. in particular, the process of realocation to quality jobs and more productive enterprises, with the consequent impact on aggregate productivity and the workers ’ purchasing power, is diminished in the lower phase of the cycle. for some workers, especially those in the early stages of their working lives, the effects can be very persistent. these situations explain the need to have a wider toolkit with indicators to monitor the behavior or the labor market over the short term. in particular, it is useful to complement survey data with information from administrative data bases and traditional aggregates on occupation and unemployment with statistics on resignations, firings and hirings. anyway, the bcch has made progress on these matters. the evidence presented is largely based on ongoing research within the bank and it naturally supplements some of the main topics discussed in our 2017 trend growth report. it also attests to the generosity of multiple institutions that, through covenants, have cooperated by sharing this information, including the ine, the internal revenue service, the civil registry, the labor directorate and the ministry of education. final remarks before i conclude this presentation, i would like to mention the materialization of an initiative that we anticipated when we presented