In addition, the latitude of changes in regulation is much more limited than that of interest rates. A more constructive approach may be to design rule-based countercyclical regulation with a clear purpose to minimize the risk of financial crisis. Nevertheless, we still need to learn more about the interactions between monetary and financial policies. Final remarks A natural reaction to a crisis is to think that everything is wrong and that all must be changed. Emerging markets, and in particular Chile, performed well during the crisis, and above all during the recovery. Therefore, a first lesson must be on the factors that produced these good results, and macroeconomic management was certainly central to the rapid recovery. The financial system was resilient, which shows that the regulatory framework was appropriate. However, our role is not to congratulate ourselves for our achievements in the past, but to look at strengthening our macroeconomic framework. As development proceeds, new challenges arise due to financial innovation, and it is extremely important to look for lessons while the crisis unfolds, to take advantage of financial development without risking financial stability. There is a need to study the interactions between monetary and financial policies further, especially given the challenges stemming from the global outlook. Implementing monetary policy in a flexible inflation targeting framework has shown its benefits; incorporating financial frictions and the appropriate policies should help us to navigate better in a very uncertain world.
José De Gregorio: Price and financial stability in modern central banking Keynote speech by Mr José De Gregorio, Governor of the Central Bank of Chile, at the joint Latin American and Caribbean Economic Association (LACEA)-Latin American Chapter of the Econometric Society (LAMES) Conference 2011, University Adolfo Ibáñez, Santiago, 11 November 2011. *  *  *  I would like to thank Rodrigo Cifuentes, Luis Oscar Herrera, Alejandro Jara an Enrique Orellana for valuables discussions and comments. Introduction It is a pleasure to address this audience at the main gathering of Latin American economists, which brings together not only the best and more promising from our region, but also great scholars from other parts of the world. During my professional life I have had many challenges and jobs. I was in politics as Minister in three portfolios a decade ago, and had of course to deal with politically sensitive issues. Then I moved to the Central Bank. Many people tend to think that life in a central bank is a quiet one. It is true, it is very low key compared to politicians’, but requires hard work. During my tenure as Governor we have had to deal with rising inflation, then the largest financial crisis in the postwar period, followed by an earthquake, a change of the government coalition after twenty years, and, more recently, inflationary shocks, exchange rate pressures and now the European crisis and an increasingly weakened global economy.