There will always be a price at which to export. Thus, the greater impact is a decrease in the prices of our exports, since quantity limitations are smaller (Figure 9). Although lower prices push producers towards reducing their supply, with the ensuing implications on employment, output and investment, it is very different from what happens, for example, to producers of intermediate goods, specific for the automotive industry. Their demand falls dramatically and all their already started production piles up unsold. And this leads to a subsequent production standstill. This explains the intensity with which the crisis is impacting the more industrialized economies of Asia. To sum up, the international crisis is bearing real effects on our output, specifically on our exports, but its reach in Chile is more limited than the effect on other economies which are based on manufacturing exports. (iii)  Global confidence crisis  As from last September, global confidence plummeted throughout the world (Figure 10). Individuals as well as companies adopted a “wait-and-see” attitude in view of the high uncertainty and deterioration of the economic outlook. As it is likely to happen in more uncertain scenarios – and, in this case, extremely uncertain – , individuals stop consuming abruptly and companies dramatically revise their investment and production plans. Therefore, propagation of the financial crisis effects was worsened by a massive loss of confidence. These losses of confidence may lead to recessions which are self-fulfilling prophecies.
Probably, a greater elasticity of housing supply contributed to limit the increase in prices (Glaeser et al., 2008). Maybe, the creation of a bubble was avoided thanks to the way in which mortgage loans and related collateral securities are granted. I consider that a highly probable hypothesis is that, in view of the income levels prevailing in Chile, which are far below those of the developed countries, expansion of consumer loans is more oriented towards financing consumption of durable goods than houses. This issue remains open, but differences are evident. Anyway, this is an area which will have to be particularly addressed in the future (Figure 2). Besides, there were countries which had a housing boom, with housing prices soaring far above their fundamentals, such as Spain and Australia, but whose banking systems have shown much more resilience.3 Consequently, what happened in the United States was rather a growing fragility of its financial system, which passed unnoticed to the market and regulators. There was a deficient assessment of risks. They mistakenly felt that they were adequately covered and diversified by the new “originate and distribute” banking model. Prudential regulation, as well as internal policies on risk assessment of financial agents, resulted in a spectacular failure. This leads me to another important issue in the recent debate on monetary policy: whether monetary policy should take into account asset prices when making decisions on interest rates.