9 years ago, the markets have undergone many turbulent sequences, although i could not detect a correlation between market upheavals and my regular appearance at aci events. let me therefore thank the luxembourg chapter for inviting me again today. i feel honoured. after a first ripple in the first quarter of this year and an increasing number of central banks pointing to the need to reprice certain risks ( i gave a warning in that respect at a conference by the european institute in washington in april ) the market reaction over the last couple of months witnessed what needs to be seen as a basically healthy reaction to mispricing. this reaction however was accompanied by the unpleasant effects of a crisis of confidence among the participants of the global credit markets prompting central bank intervention. since i agreed to speak about the turbulence in financial markets, many actions have been taken and a policy agenda for drawing the lessons is emerging. allow me therefore briefly to highlight the main events, before commenting on the experience we acquired inside the eurosystem during these weeks and months with our elaborate toolbox of instruments and operations. i will conclude with some tentative lessons to be drawn in terms of transparency, valuation, market functioning and supervisory framework adjustment. at this stage of collecting evidence, i will not dwell on the macroeconomic consequences of this turbulence which took place against the background of a strong performance of the global economy. the momentum of past dynamics still outweighs potential downward risks to the baseline scenario. i. what happened in the markets if many expected turbulence, the specific features and the transmission mechanisms were less clearly anticipated. many were barking up the wrong tree : hedge funds and private equity were not the main culprits but suffered. let me sum up the unfolding of events in 6 points : 1. credit spreads reach record lows in the first half of 2007. the combination of relatively low interest rates for a long period of time, the trend to lay off credit risk out of balance sheets and to securitize and an increasing focus on short - term returns have led to a strong demand for credit risk, especially from nonbank investors. as a result credit spreads fell to all - time lows, leading to a mispricing of credit risks. additionally, many investors relied greatly on credit rating agencies for the valuation of complex financial instruments and their use as collateral. 2. strong economies and higher commodity prices were fuelling expectations of tighter monetary policy before the crisis started. in the first half of the year the economic situation proved

vittorio corbo : recent trends and perspectives for the chilean economy speech by mr vittorio corbo, governor of the central bank of chile, at the seminar “ business and economic vision 2007 - 2008 ”, organized by sofofa and universidad del desarrollo, santiago, 17 october 2007. * * * the insertion of the chilean economy into global markets has implied that its economic cycle has been determined by a mix of domestic macroeconomic policies, world economic events and by idiosyncratic conditions, such as recent energy supply shocks. in recent years, the prominent external environment for the chilean economy has been favorable. on the one hand, a rising demand and high prices of our exports, and on the other hand, low import prices of consumption and capital goods. in addition, firms have also faced favorable financing conditions. in this presentation i will start by discussing the outlook for the world economy. next, i will discuss recent trends in the chilean economy and, finally, some reflections on the conduct of monetary policy and the main risks we currently face. perspectives of the world economy the last five years have been the best five - year period in growth, inflation and financial conditions that the world economy has experienced in over 30 years. however, this scenario has been changing in the recent months. although the turmoils in global financial markets that started in july have been reduced by the determined actions taken by the central banks of industrial countries, especially the fed, risk aversion is still high, credit maturity has been reduced considerably and, except for prime firms, financial conditions have narrowed around the world. it is foreseen that turbulences in global financial markets will have effects on the perspectives of the world economic growth. in any case, this adjustment comes at a time in which most firms and the banking sector around the world are on solid footing, perhaps with the sole exception of some economies in eastern europe. the epicenter of this trembling is in the united states, which economy already was experiencing an important adjustment in its housing market, now expected to be more intense and extended as a result of the deterioration in the credit conditions that experiences its mortgage market. at the same time, the drop in us housing prices and the less favorable financial conditions faced by us consumers will affect the dynamism of private consumption. although the deterioration of financial conditions has no direct effect on prime firms, their economic perspectives have been negatively affected by lower dynamism expected for consumption and by more restrictive financial conditions faced by their