The impact of the Fed’s tightening cycle in the 1990s on emerging markets was not as widespread as the 1980s episode had been, and countries like Chile and Colombia were able to  st  1 Remarks at the 2017 IIF Latin America Economic Forum, Asunción, Paraguay on Saturday April 1 , 2017. I acknowledge the support of Diego Gianelli and Mauricio Hitschfeld in the preparation of this speech. These remarks do not imply endorsement by the Central Bank of Chile or any of its Board members. 2 There is a third episode between June 1999 and June 2000. This process of 150 bp hikes can be understood as the final adjustment along the 1994 episode. 3 See, for example, the discussion in García‐Herrero, A., 1997, Banking Crisis in Latin America in the 1990s: Lessons from Argentina, Paraguay and Venezuela, IMF Working Paper 97/140. See also Sachs, J., A. Tornell and A. Velasco, 1996, Financial Crisis in Emerging Markets: The Lessons from 1995, NBER Working Paper 5576. 1                weather this period relatively well and to keep high growth rates.4 But there is ample evidence that, in a context of several macroeconomic imbalances in several emerging economies, the 1994 episode triggered a series of difficulties and crisis that configured the macroeconomic map in the developing world in the second half of the decade. In contrast, the monetary policy normalization process starting in 2004, did not have a negative effect on emerging economies.
The fact that in previously cycles this did not happen is good news, but a series of good output numbers in the US, a few higher‐than‐expected inflation prints, or a change in the strategy on how to manage the balance sheet of the Fed could, trigger a significant increase in long term rates. 7 BIS‐based Real Exchange Rates; for Argentina, Brazil, Chile, Colombia, México, Perú and Venezuela. 3  The current trajectory of the Dollar/Commodities/Credit Spreads provide mix evidence  Other dimensions suggest we are somewhat in between the 1994 and 2004 episodes.  The dollar has strengthened in multilateral terms in the last quarters, similarly to what was seen in 1994. Commodities have shown a mild upward trend. Definitely smoother than their trend in 2004, but also markedly more bullish than in 1994. Finally, EMBI spreads have decreased in tandem to what they did in 2004. Indeed, capital inflows have returned massively to the region in the last few months. In other words, while commodities are not as supportive of emerging economies as they were in the previous decade, markets are showing a high appetite for emerging market debt.  This suggests two things. On the one hand, there is room for a recovery in emerging economies, and markets are pricing that in. But on the other hand, this recovery will not be supported by a commodity cycle as we experienced in the 2000s, so the region is more exposed to financial shocks coming from a disorderly normalization of monetary policy in the United States.