Probably, a greater elasticity of housing supply contributed to limit the increase in prices (Glaeser et al., 2008). Maybe, the creation of a bubble was avoided thanks to the way in which mortgage loans and related collateral securities are granted. I consider that a highly probable hypothesis is that, in view of the income levels prevailing in Chile, which are far below those of the developed countries, expansion of consumer loans is more oriented towards financing consumption of durable goods than houses. This issue remains open, but differences are evident. Anyway, this is an area which will have to be particularly addressed in the future (Figure 2). Besides, there were countries which had a housing boom, with housing prices soaring far above their fundamentals, such as Spain and Australia, but whose banking systems have shown much more resilience.3 Consequently, what happened in the United States was rather a growing fragility of its financial system, which passed unnoticed to the market and regulators. There was a deficient assessment of risks. They mistakenly felt that they were adequately covered and diversified by the new “originate and distribute” banking model. Prudential regulation, as well as internal policies on risk assessment of financial agents, resulted in a spectacular failure. This leads me to another important issue in the recent debate on monetary policy: whether monetary policy should take into account asset prices when making decisions on interest rates.
(2008), “The Financial Crisis and the Policy Responses: An Empirical Analysis of What Went Wrong,” NBER Working Paper # 14631. 7  We could argue that, as it was done when inflation rose, it was the result of the domestic demand cycle which, after growing fast, slowed down dramatically. However, slowdown of demand is happening throughout the world and a decrease in inflation is observed at a much higher level in Chile. Therefore, we are witnessing structural factors which go beyond changes in demand. 8  BIS Review 41/2009  Table 1  Projected Growth for 2008  (GDP measured at market prices, percent) Sep. 2008  Dec. 2008  Mar. 2009  World  2.5  0.4  -1.6  United States Eurozone Japan  1.4 0.9 0.9  -1.3 -0.9 -0.9  -2.8 -2.6 -5.8  Asia Pacific Eastern Europe Latin America  4.6 5.6 3.7  2.7 3.0 2.1  -0.2 -0.5 0.3  Source: Consensus Forecasts of corresponding date. Figure 1  Chile's MPR and US Fed funds  (percent) 12  12  10  10  8  8  6  6  4  4  2  2  0  0  90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 Fed Funds  MPR (*)  (*) As from August 2001, the monetary policy rate is set in nominal pesos; before that, it was indexed to headline inflation.