So the relative weight of past inflation, the exchange rate, wage inflation, market expectations and output gaps in inflation dynamics may differ significantly from advanced economies. Chile has pioneered monetary policy innovation in the emerging world. After four decades of double-digit inflation, our Central Bank was given independent status and a mandate of price stability nearly 30 years ago and exercised it swiftly, with the support of a first version of inflation targets in the early 1990s. The monetary policy framework further evolved after the Asian Crisis to a fully-fledged forward inflation targeting regime with a floating exchange rate in 1999. This was soon complemented by a major upgrading of monetary policy communications and a structural fiscal policy rule. 2  Central Bank of Chile October 2018  This framework has basically remained in place for the last 18 years and its effectiveness has improved as markets, agents and institutions have adapted to it. Over time, markets have developed adequate FX hedging mechanisms, inflation expectations have become more anchored at the monetary policy target level, the Central Bank has overcome fear of floating, financial markets have deepened and the labor market has gained some flexibility. As an open economy, we are not immune to external shocks but the ability to cushion them through the exchange rate and countercyclical policy response has improved significantly. At the time of the 2007 Global Financial Crisis, this framework helped us to avoid large costs and contain financial problems despite our strong ties with the global economy.
Despite Asia’s diversity in people, culture and traditions, the region has been able to come together as a group to achieve greater integration in the areas of trade and investment. While trade remains an important contributor to growth in the region, of importance is that the pattern of trade of the Asian economies has changed significantly. This decade has seen the rise in intra-regional trade. Intra-regional trade in Asia has risen from 32% of total exports in 1995 to an average of 50% in 2008. Increasingly, as incomes rise in Asia, intra-regional trade will increase to meet the rising domestic demand of regional economies. More than half of the world’s population resides in Asia that has a favourable demographic structure that comprises of a significant young and dynamic segment. The growing middle class has altered the consumption and savings patterns in the region, providing the region cumulatively with a huge growing consumer market. Asia also has high savings which allows for higher consumption while still having surplus funds to finance regional investment activity. The rapid trade liberalisation across Asia has improved market access, creating a vast market for goods and services. In addition, bilateral and region-wide free trade agreements are set to expand further even as multilateral agreements continue to be pursued. The growing pace of intra-regional investment flows has also gained momentum to complement the region’s trade integration. Businesses in the region are leveraging on regional complementarities as well as taking the opportunity of the growing markets in the region.