the housing bubble was caused by monetary policy, which failed to act opportunely and permitted severe imbalances to accumulate. nonetheless, one must bear in mind that soaring asset prices do not necessarily end up in a crisis like this one. closer attention must be paid to the financial fragility that accompanied this process, whose main culprit was the unrestrained financial innovation that generated deep distortions that neither markets nor regulators were able to predict. an expansionary monetary policy can undoubtedly induce an excessive increase in the prices of assets and credit. the role of monetary policy, in our case carried out through an inflation targeting regime, is to smooth the business cycle. therefore, it is possible to think that a very expansionary monetary policy can exacerbate an economic boom. likewise, such a policy will have serious consequences on output once the monetary impulse is withdrawn. however, an expansionary monetary policy could not explain by itself the severity of the financial collapse the world is seeing today. there are countries where the monetary policy was expansionary, with interest rates at their minimum, and no housing bubble occurred. a couple of examples are canada and chile, two inflation targeters where, consistently with this policy framework, interest rates hit very low levels not so different from the fed funds rate ( figure 3 ). still, housing prices generally did not experience increases comparable with those of other economies, and their financial systems have remained sound. furthermore, in some cases housing prices did go up high, with clear signals of a bubble being formed. however, their financial systems made it through and remained stable and, despite the current difficulties including very recessive episodes, have avoided acute financial crisis. this is the case with, for example, australia and spain. naturally, when facing disproportionate increases in the price of housing, both the level of borrowing and the building boom associated with it are symptoms that the downturn that comes with the cycle will be severe. this is because of the deleveraging that households will have to undertake and the contraction of the building activity. still, this need not result in a systemic financial crisis. in any case, monetary policy can and does help in the creation of bubbles, although not so much by the level of the interest rate but by the monetary policy strategy with which financial turmoil is dealt with. in the united states, the strategy of turning a blind eye to the period of soaring asset prices and then cleaning the mess when it was already there used to

, march 1973 = 100 ) 4, 5 4, 5 3, 5 3, 5 2, 5 2, 5 4, 0 4, 0 3, 0 3, 0 2, 0 2, 0 1, 0 1, 0 1, 5 1, 5 0, 5 0, 5 0, 0 0, 0 u. s. a. japan 73 78 83 88 93 98 03 08 eurozone ( 1 ) gray area shows forward curve. dotted line shows forecasts in september's ipom. ( 2 ) increase denotes a depreciation of the dollar against main trading partners. last figure corresponds to november. sources : bloomberg and u. s. federal reserve. bis central bankers ’ speeches figure 3 net investment flows towards emerging economies ( * ) ( billions of dollars, accumulated in 12 months ) - 35 - 35 - 70 - 70 stocks bonds total ( * ) from investment funds investing in emerging economies. source : emerging portfolio fund research. figure 4 oil and copper prices ( dollars per barrel ; dollars per pound ) food prices ( index, 2009 = 100 ) oil copper 06 07 08 edible oils meats cereals sugar dairy ( 1 ) at the london metal exchange. ( 2 ) based on fao figures that consider average trading prices in main markets. source : bloomberg. bis central bankers ’ speeches table 1 world growth and commodities ( annual change, percent ) average average 90 - 99 00 - 07 ( e ) ( f ) ( f ) ( f ) world gdp at ppp world gdp at mkt exchange rate trading partners 2. 9 2. 4 3. 1 4. 2 3. 2 3. 6 - 0. 6 - 2, 0 - 0. 2 4. 9 3. 7 5. 1 3. 8 2. 9 3. 6 4. 5 3. 7 4. 2 united states eurozone japan china asia excl. china, india, and japan latin america ( excl. chile ) 3. 2 2. 2 1. 5 10, 0 5. 6 2. 7 2. 6 2. 1 1. 7 10. 5 5. 1 3. 6 - 2. 6 - 4, 0 - 5. 2 9. 1 0. 1 - 2. 2 2. 7 1. 6 3. 5 10. 1 7. 1 6. 0 2. 3 0. 8 0. 8 8. 5 4. 2 3. 7 3. 3 1. 4 1. 9 8. 8 5.