exchange rate trends. the best illustration is the experience of beef farmers in the three years to the middle of 1996 : of the fall in the farm - gate price of bull beef over that period, more than three - quarters was caused by a fall in overseas market prices, and less than one - quarter by the rise in the exchange rate. in other words, the fall in the market price of bull beef was substantially greater in its impact on farmers than the effect of the increase in the exchange rate. our land - based exporters operate in inherently volatile markets, and would face major swings in prices even if, in some way, the new zealand dollar could be held absolutely stable. this should influence what can sensibly be paid for farming and orcharding assets. so yes, monetary policy does have an impact on the exchange rate, but that in turn has much less impact on exporters ’ net incomes than on gross incomes, and has been of very much less significance to land - based exporters than the fluctuations in international commodity prices and the long - term decline in the real prices of many of the commodities which new zealand exports. the monetary conditions index but what of the reserve bank ’ s monetary conditions index? is the mci, as some have suggested, really to blame for much of the current economic slowdown, or at very least for the sharp increase in interest rates recently? before answering those questions, it is worth recalling briefly that, once every three months, the reserve bank does a comprehensive projection of the new zealand economy and of inflation for a period of two or three years. that projection takes into account all the information available to the bank at that time - the official statistics covering gdp, prices, wages, employment, imports, exports, and all the rest ; the data collected by the bank itself on the money and credit aggregates, and the path of interest and exchange rates ; the survey data covering business and consumer confidence ; the views expressed to us, formally and informally, about individual businesses and the economy ; and much more. at the end of that process, we reach a view on how firm monetary conditions need to be to keep inflation moving towards the middle part of the 0 to 3 percent inflation target we have agreed with government. but of course neither we nor any other central bank can control the mix of monetary conditions. in other words, we can tighten monetary conditions, but we can not determine whether that tightening takes the form of an increase in interest rates with little or no

4 of 20 central bank of chile september 2019 by funneling household savings into capital markets, pension funds were especially important in the early development of a deep debt market ; and their contribution to market - making benefited from a stable macroeconomic environment with controlled inflation, extensive use of the uf ( a currency unit indexed to inflation ), and the restructuring of central bank ’ s debt into longer maturities. a deeper and more liquid debt market also facilitated the pricing of debt issued by private companies in local markets. over time, pension funds were allowed to invest abroad. this fostered profitability and diversification of pension funds, prevented distorting prices in the domestic financial sector, and created a two - way street for capital flows managed by domestic agents. as foreign assets of pension funds needed to be protected from fx risk, a hedging market also developed. this fit well with changes on the macroeconomic side. in the late 1990s chile adopted a flexible exchange rate regime and liberalized capital flows. page 5 of 20 central bank of chile september 2019 all of these reforms led to developing the chilean financial system in a sound way. currently placing chile near the median of a group of countries in terms of private indebtedness. how does the chilean financial market currently combine with the exchange rate regime? under the flexible exchange regime adopted in 1999 and taking into account all the reforms mentioned above, it is not surprising that chile has a relatively volatile currency. however, in terms of gdp growth we appear more stable than our peers. page 6 of 20 central bank of chile september 2019 this is due, in part, to the fact that households, the government and small businesses are not exposed to exchange rate risk, either because they do not borrow in foreign currency or because they hold a natural hedge. paradoxically, given the openness of the capital account and free exchange rate, chile is not a dollarized country at all. banks and regulators, on the other hand learned well the lessons of the 1980s crises and fx exposure is central to risk assessment and prevention. larger companies, on the other hand, can draw on the openness of the economy and the prestige of local regulations to take advantage of the overseas bond market while avoiding undertaking fx risk. corporations have learned to operate in a flexible fx environment by using both, natural and market - based fx risk hedging instruments. this, in turn, has also been supported by the development of the derivatives market, in which pension funds have been key counterparts as