As the cycle, or perhaps I should say if the cycle, becomes synchronized all over the world, the need for independent monetary policies may fade away. Gradually, the number of currencies in the world will decrease through time. This is not economic fiction: a tendency in this direction is already present among smaller countries in Latin America with large trade and investment relationships with the United States. However, a world tendency to a significant decrease in the number of currencies is probably a very long run one, where Keynes’ dictum on the long run comes to mind. In any case, I am convinced that, 5 as Rogoff argues in a recent paper , it may not be desirable to pursue currency consolidation all the way. Meanwhile, in the short and medium run, the increase in productivity provides more room for monetary policy to maneuver. Productivity growth alleviate inflationary pressures providing more room for monetary policy to exert its short run influence on the real economy. 5. Flexibility  The key word for an emerging economy in a changing world is flexibility: in exchange rates and interest rates, to accommodate shocks without concentrating their effects in one particular market; in factor markets, both labor and capital, to minimize the cost of transition from one state of the economy to another. The task before us, in an emerging economy like Chile, is to increase flexibility in all markets.
And shorter cycles make for a more effective monetary policy. 1  Krugman, P. “Crisis: the price of globalization?” Paper presented at Jackson Hole, Wyoming, 2000. 2  World Economic Outlook, May 2001, Chapter III: “Three Current Policy Issues: Impact of the Global Technology Correction on the Real Economy”, page. 57-66. 3  Brookings Institution (2001): “The Economic Payoff from the Internet”. www.brook.edu/es/research/areas/it/ipibisummary.htm. Blinder, Alan (2000): “The Internet and the New Economy”, Brookings Institution Policy Brief N°60, June. Altig D. y Peter Rupert (1999): “Growth and the Internet: Surfing to Prosperity?”, Federal Reserve Bank of Cleveland Economic Commentary, September. 4  For instance, Robert Gordon (Does the “New Economy” Measure Up to the Great Inventions of the Past? Journal of Economic Perspectives, Fall 2000) mentioned “the new economy has meant little to the 88 percent of the economy outside of durable manufacturing; in part of the economy, trend growth in multifactor productivity has actually decelerated, despite a massive investment boom in computers and related equipment”. Page 72. BIS Review 53/2001  1  Optimal inventory management in an increasingly open international economy will not only imply shorter, but also, most probably, more synchronic cycles. A by-product of this development is an expansion of the geographical limits of optimum currency areas à la Mundell. 3. Terms of trade shocks and emerging economies  The synchronization of the cycle increases volatility in commodity markets, an important source of international transmission of the cycle to a good number of emerging economies.