of financial institutions and the central government are not included. the present - day currency system is built on a complex network consisting of the central bank, financial institutions that provide deposit money, and financial markets where financial institutions carry out their activities. therefore, to secure the ease of use of money and its value, maintenance of financial system stability – the stable functioning of financial institutions and financial markets – is essential. failure of one financial institution to meet its payment obligations may lead to problems for other financial institutions that had been expecting the transfer of funds from the troubled institution, and this may lead to a chain reaction of defaults, that is, the materialization of " systemic risk. " in order to prevent the materialization of such systemic risk, central banks may temporarily extend necessary funds to financial institutions facing funds shortages. this is called the " lender of last resort " function of the central bank. in the period from the latter half of the 1990s to the early 2000s, when japan's financial system was in turmoil, the bank extended such emergency loans, the so - called nichigin tokuyu, to financial institutions. this is an example of the central bank assuming the role of lender of last resort. in addition, to prevent the materialization of systemic risk, central banks should always monitor whether activities of financial institutions and the functioning of the payment and settlement system are sound, and provide advice as necessary. to this end, the bank is continually monitoring the situation in financial institutions and in financial markets. the bank also conducts on - site examinations of financial institutions, in which the bank's staff visit the premises of these institutions to examine in detail their financial soundness and risk management. 3. conduct of monetary policy the last item on my list of central banking operations is the conduct of monetary policy, which aims at maintaining stability in the value of the currency, in other words, at maintaining price stability. central banks maintain price stability through controlling the amount of currency they supply and the level of interest rates, that is, the price of money. if the bank supplies abundant funds to the market, the market interest rate – the uncollateralized overnight call rate – will decline, reducing the funding costs of financial institutions. this will influence other interest rates such as those on loans to households and firms. through the change in interest rates, the cost of funds necessary for the economic activities of firms and households will change, and this will stimulate overall economic activity. as a result, this will

horizon. we are taking into account the different factors affecting the outlook, such as the behavior of the exchange rate, the strength of the expansion of demand and activity, and the perspectives of lower interest rates in the world, among others. two years into the crisis, the world economy has entered a new stage, in which fiscal policy is increasingly being discussed. the joint effects of monetary and fiscal policy have been central in averting a much deeper crisis. however, disentangling the effects of each one on the economy ’ s performance and determining the best course of action remains the topic of heated debate within academia and in policy circles, in particular, on the speed and timing of the fiscal retrenchment. this is largely dependent on the strength of each country ’ s fiscal accounts. the ten papers to be presented during the conference will be organized into three sections. the first will assess the effects of fiscal policy on macroeconomic outcomes. the first contribution to this section, by tommaso monacelli, roberto perotti and antonella trigari, will focus on the effects of tax cuts on the labor market. joachim voth will present work that analyzes the extent to which fiscal retrenchment can take place before civil unrest is provoked. rodrigo caputo and miguel fuentes will examine the long - run effects of fiscal transfers and investment on the real exchange rate in a broad panel of countries. mauricio villafuerte, pablo lopez - murphy, and rolando ossowski will close with an examination of fiscal policies among resource - exporters in latin america and the caribbean. the second section will investigate the interactions of fiscal and monetary policy. in the first presentation, gauti eggertsson will analyze how the fiscal multiplier is affected by the degree of coordination between the fiscal and monetary authorities. then, giancarlo corsetti will question the conventional wisdom that fiscal policy is more expansionary under a fixed exchange rate than under a floating regime. finally, luis felipe cespedes, jorge fornero, and jordi gali will present a paper that estimates the effects of chilean fiscal policy on consumption and income using a framework that relaxes the assumption of ricardian equivalence. the final section will focus on fiscal policy in emerging market economies. jeffrey frankel will discuss the structural fiscal spending rule implemented in chile in 2001. eduardo engel, christopher neilson, and rodrigo valdes will conduct a welfare analysis of the effects of chile ’