central bank of chile ’ s twenty - first annual conference “ monetary policy and financial stability : transmission mechanisms and policy implications ” opening remarks by governor mario marcel good morning and welcome to the twenty - first annual conference of the central bank of chile. it is a pleasure to host this event that every year gives us an opportunity to reflect and discuss about issues that have direct implications on our work as central bankers from a broader perspective. i am looking forward to active discussions through the rest of the week on this year ’ s conference theme : monetary policy and financial stability. ten years have passed since the onset of the global financial crisis and we are still dealing with its economic consequences. but we have learnt a lot, and a decade of hindsight about the causes and long - lasting effects has led us to rethink the way we conduct monetary policy, how to ensure financial stability, and how these two elements are, or should be, interconnected. one of the most important policy lessons from the crisis concerns the relevance of actively seeking financial stability in a context of ever - increasing financial complexity. and central banks worldwide have been increasingly involved in assuring this, since it has become clear that financial stability is a pre - condition for price stability. although financial stability has long been a key concern for policymakers, particularly in emerging countries where financial vulnerabilities are, or were, more evident and where risks to stability often come from abroad, nowadays the key concern is how to act in a preemptive way with actions that are costly, to ensure financial stability into the future. how should macroeconomic policy pursue the goal of financial stability in normal times, when the benefits are uncertain but the costs are noticeable? as many of you well know, this concern came with the observation that the buildup of risks in the united states before the crisis occurred during a period of stable prices and output, the so called “ great moderation ” period, where low nominal interest rates that were consistent with the central bank ’ s commitment with cpi inflation stability may have led to excessive risk - taking by financial intermediaries, and to a rise in asset prices, while good economic conditions masked the developing of financial imbalances. in the aftermath of the crisis, policy rates were drastically reduced and diverse policy measures were implemented as the zero - lower bound became an active constraint. but the increasing concern about financial conditions and the consequent reassessment of the macroeconomic policy framework was most evident with the adoption of macropr

for the coordination of surveillance for cross - border institutions – a little bit like in the us. the federal reserve has a position which concentrates very much on the big cross - border institutions. and i see also suggestions coming from the private sector, coming from the industry, that we could play a more important role in this domain. as president of the ecb ’ s governing council, i would say again, i have no position of the governing council, but i think it's flattering for the governing council that we are called to reflect on that, by both parliament and perhaps the high - level group that has been set up by the commission and where you have a number of eminent personalities. we will see. a little bit of philosophy again. we cannot afford to put in the future the concept of the market economy at risk as we did. i have known myself a world where you had an east and a west, a north and a south. in this matrix, we were only one square out of four where you could say they are in favour of market economies. the others were devising other ideas, which failed, and it's very good that they failed. however, the trust which was put in the resilience of the market economy is at stake now. i think we were, again, quite lucid on this. i have permanently with me the first page of the financial times warning of it, it was january 2007, in davos, where i was providing the sentiment of my colleagues, as it has arisen from the governors ’ meeting in basel on the fact that market participants had to prepare for a significant correction because risks were underassessed and underestimated in global finance. but the fragility, not only of global finance but of the global economy itself, is something that we should reflect on. you know, there are some key intermediate inputs that are produced in only three factories in the world. this is not reliable. we have this just - in - time system, with minimum inventories, which in case of a shock might make the full body of the real economy more immediately vulnerable. in the financial system we have eliminated a number of cushions and shock - absorbers that we had here and there. this morning, i was telling our staff, that this is as if we had been keen on eliminating a number of air bags from the [ global finance ] “ car ”. so now that we have an accident, we are surprised to