Despite the downturn of the developed world and the deceleration in China, commodity prices have remained high, especially for copper. This has driven today’s terms of trade, despite a drop this year, to be fairly high by historic standards. In fact, other commodity exporting economies, such as Australia, New Zealand or Canada, have seen appreciations in their currencies that are comparable with that of the Chilean peso (figure ii). On the other hand, there is our strong economy, partly related to the effects of the higher copper price on the public sector’s structural income and expenditure, as well as with the greater impulse coming from mining projects and related investments. While the developed world is weak and the main emerging economies are decelerating beyond projections, Chile  2  BIS central bankers’ speeches  is growing more than expected. The differentials between developed countries’ and Chilean interest rates reflect this dissimilar stage in the cycle. It must be noted that the appreciation of the local currency with respect to the dollar is not an exclusive feature of the Chilean economy. This phenomenon is shared by all the exporters that are our competitors in the world markets. This, because it originates primarily in the weak dollar, which in turn originates in the strong monetary expansion carried out by the United States. However, as I said before, this is the result not only of the expansionary monetary policy, but also of weak domestic demand and external imbalances in the U.S.
Conversely, at the height of the crisis, financial conditions tightened sharply even as the Federal Reserve aggressively pushed its federal funds rate target down toward zero. As a result, monetary policymakers need to take the evolution of financial conditions into consideration. For example, when financial conditions tighten sharply, this may mean that monetary policy may need to be tightened by less or even loosened. On the other hand, when financial conditions ease—as has been the case recently—this can provide additional impetus for the decision to continue to remove monetary policy accommodation. While I agree with Hélène in most respects, there are a few points where I am less convinced. While the global financial cycle complicates policymakers’ ability to guide financial conditions in their own economies, I’m not persuaded that the trilemma has been replaced by a dilemma—that is, essentially an “either/or” choice between an independent monetary policy versus an open capital account. While there is no panacea to insulate countries from financial spillovers—particularly when policy in some areas is constrained by the effective lower bound on interest rates—I think a combination of exchange rate flexibility, a credible monetary policy framework, sufficient foreign exchange reserves, and a strong financial system can help mitigate the effects of such spillovers. Moreover, it strikes me that market participants have become more discriminating over time about the circumstances of different countries, rather than painting all EMEs with a similar broad brush.