And my main conclusion for monetary policy is that flexible inflation targeting – applied in the right way and in particular using all the information about financial conditions that is relevant for the forecast of inflation and resource utilisation at any horizon – remains the best-practice monetary policy before, during, and after the financial crisis. A related conclusion is that neither price stability nor interest-rate policy is sufficient to achieve financial stability. A separate financial-stability policy is needed. In particular, monetary policy and financial-stability policy need to be conceptually distinguished, since they have different objectives and different appropriate instruments, even when central banks have responsibility for both 1. So today, I will first briefly summaries my view of the causes of the crisis, and then discuss what the possible lessons are for future monetary policy, and finally I shall emphasise the distinction between monetary policy and financial-stability policy. The financial crisis had little to do with monetary policy As I see it, the financial crisis was caused by factors that had very little to do with monetary policy. The factors were the macro conditions; distorted incentives in financial markets; regulatory and supervisory failures; information problems; and some very specific circumstances, such as the US housing policy to support home ownership for low-income households 2.
Figure 9 Nominal exchange rate (*)  Chile: Real exchange rate  (indexes 2 January 2008=100)  (index 1986=100)  160  160  140  140  120  120  100  100  80  80  Jan.08  Jul.08  Brazil Australia New Zealand  Feb.09  Sep.09  Mexico Canada Chile  120  120  110  110  100  100  90  90  80  80  70  70 88  91  94  97  00  03  06  09  1989-2008 average 1994-2008 average  (*) Parity with the US dollar. Sources: Central Bank of Chile and Bloomberg.