The conventional wisdom is that if inflation expectations are well anchored, monetary policy need not react to supply shocks. This premise is based on the assumption that the supply shocks are purely temporary. This assumption does not always hold. In the real world, oftentimes supply shocks are structural and lead to a permanent trend upward shift in prices.
Under these circumstances, it would have seemed a logical next step to turn in the direction of Latin America. But this strategy has not been pursued as vigorously as expected. The slow progress of the FTAA negotiations may also further constrain the ability of our firms to penetrate extra-regional markets.