the cycle on international interest rates will probably also be an increase in the volatility of those rates. coverage against interest rate volatility is an additional argument in favor of integrating the emerging country economies with that of the world. 4. monetary policy another by - product of the new information technology is the blurring of the traditional definitions of money. it is now clearly possibly for the non - banking private sector to create money substitutes on demand. this development will tend to render inefficient the regulation of limited definitions of money as a tool to influence economic activity and prices. if this is so, interest rates will reign unchallenged as a monetary policy tool, while inflation targeting will be in the forefront as a nominal anchor for the economy. by the way, under these conditions it will become extremely difficult to differentiate between financial and non - financial firms. until a greater synchronization of the cycle becomes evident, the need for an independent monetary policy will necessarily lead to floating exchange rates. as the cycle, or perhaps i should say if the cycle, becomes synchronized all over the world, the need for independent monetary policies may fade away. gradually, the number of currencies in the world will decrease through time. this is not economic fiction : a tendency in this direction is already present among smaller countries in latin america with large trade and investment relationships with the united states. however, a world tendency to a significant decrease in the number of currencies is probably a very long run one, where keynes ’ dictum on the long run comes to mind. in any case, i am convinced that, as rogoff argues in a recent paper, it may not be desirable to pursue currency consolidation all the way. meanwhile, in the short and medium run, the increase in productivity provides more room for monetary policy to maneuver. productivity growth alleviate inflationary pressures providing more room for monetary policy to exert its short run influence on the real economy. 5. flexibility the key word for an emerging economy in a changing world is flexibility : in exchange rates and interest rates, to accommodate shocks without concentrating their effects in one particular market ; in factor markets, both labor and capital, to minimize the cost of transition from one state of the economy to another. the task before us, in an emerging economy like chile, is to increase flexibility in all markets. we have been working on that in recent years following a careful, gradual approach, to make sure that we put in place the necessary

to significant savings in the business - to - business supply chain. one of the implications of this increase in the availability of information is a great improvement in inventory management. the optimal level of inventories is becoming smaller, so that the real economy reacts faster to demand and / or supply shocks, reducing both the length and the width of the cycle. and shorter cycles make for a more effective monetary policy. krugman, p. “ crisis : the price of globalization? ” paper presented at jackson hole, wyoming, 2000. world economic outlook, may 2001, chapter iii : “ three current policy issues : impact of the global technology correction on the real economy ”, page. 57 - 66. brookings institution ( 2001 ) : “ the economic payoff from the internet ”. www. brook. edu / es / research / areas / it / ipibisummary. htm. blinder, alan ( 2000 ) : “ the internet and the new economy ”, brookings institution policy brief n°60, june. altig d. y peter rupert ( 1999 ) : “ growth and the internet : surfing to prosperity? ”, federal reserve bank of cleveland economic commentary, september. for instance, robert gordon ( does the “ new economy ” measure up to the great inventions of the past? journal of economic perspectives, fall 2000 ) mentioned “ the new economy has meant little to the 88 percent of the economy outside of durable manufacturing ; in part of the economy, trend growth in multifactor productivity has actually decelerated, despite a massive investment boom in computers and related equipment ”. page 72. optimal inventory management in an increasingly open international economy will not only imply shorter, but also, most probably, more synchronic cycles. a by - product of this development is an expansion of the geographical limits of optimum currency areas a la mundell. 3. terms of trade shocks and emerging economies the synchronization of the cycle increases volatility in commodity markets, an important source of international transmission of the cycle to a good number of emerging economies. the synchronization and shortening of cycles will probably also increase the volatility of international interest rates. economies with liquidity constraints and limited access to international financial markets will suffer the most. the policy prescription here is to strengthen fundamentals and open and deepen the integration of both product and capital markets with the rest of the world. the effect of synchronization and shortening of