For those of us in charge of economic policy in our countries, it is absolutely essential that we strive to address these imbalances if they exist, and at the same time that we do not create them through our decisions. Over-stimulating the economy when output gaps are narrow and inflationary pressures have risen could lead to imbalances. I trust that they are not as sizeable as those of the developed world, but in any case solving them is always costly. On the other hand, it has taught us the relevance of maintaining and improving a good macroeconomic framework. In Chile, this framework rests on four pillars. First, monetary policy management is based on a flexible inflation-targeting regime, conducted by an autonomous central bank and supported by a floating exchange rate system. Second, a fiscal policy that is accountable and predictable thanks to a structural balance rule. The significant amount of savings accumulated during the run-up of copper prices has been a crucial factor in bolstering the resilience of the Chilean economy and in providing a countercyclical fiscal boost. Third, a high degree of commercial and financial integration with the rest of the world. Finally, a sound financial system, with globally integrated, well capitalized, and adequately-regulated banks. Our countries have suffered decades as a result of mistaken economic policies. The Great Recession showed that our current state of preparation to confront and mitigate the impact of an adverse scenario is much better than in the past, and that it is the path that we must continue.
A first cost is that it may create confusion as to the objective of the monetary authorities: inflation or the exchange rate. In our case, we have dealt with this through transparent mechanisms whereby we anticipate the amounts and terms of interventions, and by maintaining a flexible exchange rate. In addition it has always been clear that the exchange rate is not an objective and the main goal of the Central Bank is price stability. A second cost is of a financial nature. Foreign reserves are invested in highly liquid and secure instruments of developed countries, whose interest rates are lower than those of domestic instruments used to finance their acquisition. Conversely, the benefits of having these reserves are the enhanced security they provide in case of an abrupt cut of external financing. These benefits are hard to measure, but it is reasonable to expect that they will decline as the availability of reserves increases, as has been occurring in Chile since 2008. Allow me to express some final thoughts. Final thoughts News during these last weeks have led us to a scenario in which the effects of the deteriorating external situation that we forecast some time back are not evident and in which inflationary pressures stemming from a higher cost of energy have resurfaced. Hence, if a few months ago it was clear that the most likely scenario for monetary policy in emerging economies was a further loosening, today it is much less clear so.