investment rate and, particularly, a negative contribution to growth of total factor productivity. as a response to this situation, the mexican authorities embarked since late 2012 on a farreaching structural reform effort, aimed at increasing the economy ’ s growth potential. the see world bank ( 2015 ) : “ latin america treads a narrow path to growth : the slowdown and its macroeconomic challenges ”, semiannual report of the office of the regional chief economist, april ; and organisation for economic co - operation and development ( 2016 ) : “ economic policy reforms 2016 : going for growth interim report ”, february. bis central bankers ’ speeches reform package encompassed a wide range of sectors, as well as a significant strengthening of the institutional setting. the structural reform measures are still under implementation, and the full gains from this transformation will take a long time to materialize. however, some results are readily visible. i would like to highlight in particular the evolution of inflation. as of the first half of may, the annual inflation rate in mexico stood at 2. 5 percent, below the 3 percent target. as a matter of fact, we have been observing figures consecutively under the target since may 2015, an unprecedented achievement. this is of course the result of many factors, the implementation of strong macroeconomic policies the most prominent among them. but structural reform has also played a major role in these developments. for instance, the competition brought about by reform in the telecommunications sector has resulted in significantly lower prices for these products, with beneficial effects on inflation. 10 this has also been supported by a reduction in electricity prices, partly the result of reform in the energy sector. the recent performance of economic growth in mexico is also worth noting. during the years before the eruption of the financial crisis ( 2000 to 2007 ), the mexican economy showed an average annual rate of growth of around 2. 7 percent. the figure for 2011 to 2015 is similar ( 2. 8 percent ), notwithstanding the fact that the rate of gdp growth of our main trading partner, the united states, fell by 0. 6 percentage points between these two periods, 11 and that the economy was hit by a number of other external shocks, including a sharp decline in oil prices. it is also worth noting that mexico is one of the few emes where a deceleration of growth is not observed during the two periods under consideration. although it would be very difficult to isolate the different determinants of this performance, there is clearly a possibility that the

and bubbles could be interpreted as unavoidable and even beneficial as they become the means of rewarding good choices and punishing bad decisions. one macroeconomic risk of asset price collapses is the possibility of a growth slowdown or a recession. the empirical evidence of the effects of price falls in stock and currency markets is somewhat mixed. however, the likely negative real consequences of housing bursts more formally, a bubble is defined as rises in asset prices that exceed an asset ’ s fundamental value. its testable implications are necessarily conditional on the theoretical model chosen. for alternative assessments of classical bubble cases, see garber ( 2001 ) and kindleberger and aliber ( 2005 ). appear to be clearer. statistical analyses reveal that housing prices are strongly pro - cyclical and that they are leading indicators of recessions and expansions. a second, potentially more serious cause of concern over large housing price fluctuations is that they have frequently ended in banking crises. these episodes may involve problems of liquidity and insolvency of certain financial institutions to the extent that the functioning of the economy becomes impaired, for instance, if they produce a generalized panic and loss of confidence. 3 a target of smooth asset price behavior is hardly attainable through economic policy, given the intrinsic uncertainty involved in financial transactions and the imperfect information policy makers have at hand. more important, however, is the fact that such an objective is probably undesirable as it amounts to controlling risk and returns, thereby creating moral hazard and inhibiting innovation and growth. what does constitute a sound policy goal is building conditions to ensure the continuous functioning of the basic financial system, particularly the banking system, without which the economy cannot work. this focus, which operationally requires a delimitation of what a basic system is, gives content to the objective of financial stability and crisis prevention. preventing financial crises the global crisis reflected excessive risk taking and high leverage on the part of economic agents and financial institutions. a basic postulate of economics is that people respond to incentives. hence, to reduce the probability of another financial collapse, it is necessary to learn from experience by identifying the ultimate sources of the incentives that led to the crisis. by this, i mean the environment that economic agents face in making decisions. given this setting, private actions can be regarded as results, not as root causes of problems. examples of the former in the crisis are the high bonuses paid to bankers for placing securitized loans and the poor credit evaluation of these instruments made by