directly introduced to prevent these mismatches and through appropriate risk management. finally, given some recent calls for the use of capital controls in emes, there is a collective action problem. as one country imposes capital controls, it pushes international financial flows elsewhere, inducing others to impose capital controls, and so on. now assume that all countries are able to impose capital controls so that at the margin, there are no changes in net capital flows. then the global adjustment would not take place, emes would grow beyond their potential, generating inflation, while weak economies would be trapped with low demand growth. emes can still try to temper capital inflows transitorily, but to completely avoid them would be unfeasible and inefficient. concluding remarks despite all the current tensions, the global economy is adjusting. exchange rates of emes and commodity exporters have been strengthening – albeit at different speeds as some economies try to smooth the adjustment – and the global recovery is taking place ( figure 4 ). fortunately, trade restrictions, which represent the biggest threat to the global recovery, have not been implemented. in recent weeks we have witnessed increased tensions in the world, such as the turmoil in the middle east and north africa and the natural and nuclear disasters in japan. we need to play close attention to these developments, but they should not change the perspectives of the dual - speed recovery in the world economy. as discussed above, the policy decisions in large countries have repercussions on the rest of the world. however, the main role for policymakers is to secure recovery and to create the basis for sustainable growth, which requires macroeconomic and financial stability. policy bis central bankers ’ speeches measures in the u. s., such as qe2, are trying to do just that. beyond our professional assessment, a successful recovery in the u. s. is good for the world economy. by the same token, chinese authorities have decided on a gradual path of adjustment to secure enough growth for all the social and economic needs they face. from a macroeconomic standpoint, their policy of exchange rate management is something many emes have tried several times, and although i am a firm believer that exchange rate flexibility is crucial for small open economies, it is of course not the general rule and is not be to be applied in all cases and under all circumstances, especially for large low - income economies. overall, the world needs a sustained recovery in the u. s. and

growth in china. the same is valid for emes. we need to contribute to the global adjustment, but our main concern must be the welfare of our citizens. containing the current inflationary pressures is essential to allow for sustainable growth. delaying monetary policy adjustment may result in more severe adjustments in the future. also, rebuilding fiscal buffers is important in order to have a more balanced recovery and to be better prepared to conduct macroeconomic policies. some days ago, the chilean government announced a timely and relevant fiscal tightening that should contribute to the moderation of aggregate demand. the world is not going through a currency war ; neither are emes being flooded by liquidity from advanced economies. but, in emes, there are many tensions and challenges that we must deal with appropriately in order to build more resilient economies and take full advantage of the great progress achieved during recent years in terms of macroeconomic and financial stability. these are the main contributions central banks can make to their countries. figure 1 world output ( annualized quarterly change, percent ) output gap - 2 - 2 - 5 - 5 - 4 - 4 - 10 - 10 - 6 - 6 emerging economies developed economies 02 04 06 08 10 developed economies emerging asia latin america ( 1 ) ppp - weighted regions. ( 2 ) the fourth quarter is an estimate. ( 3 ) gap obtained with the hp filter, except in advanced economies, where oecd estimates were used. sources : central bank of chile based on data from bloomberg, consensus forecasts, oecd, and the statistics offices of each country. bis central bankers ’ speeches figure 2 monetary policy rates around the world ( percent ) chile developed econ. emerging eco. ( 1 ) corresponds to a simple average of the reference rates for each group of countries. ( 2 ) includes euro area, japan, united kingdom, and united states. ( 3 ) includes brazil, czech republic, china, colombia, hungary, south korea, mexico, peru, poland, and south africa. sources : central bank of chile and bloomberg. figure 3 u. s multilateral nominal exchange rate ( * ) ( index, march 1973 = 100 ) ( * ) an increase indicates a depreciation of the dollar against main trading partners. sources : bloomberg and u. s. federal reserve. bis central bankers ’ speeches figure 4 real exchange rate ( index ; 2005 = 100 ) latin america emerging europe united states emerging asia commodity exporters ( 1 ) correspond a simple average of the real exchange