Long-term interest rates (variation in basis points) May 2006(1) Argentina Australia Brazil Chile Eurozone Hungary Indonesia Japan Malaysia Mexico New Zealand Philippines Poland Russia South Africa South Korea Turkey United Kingdom USA  February 2007 (2) -4 15 25 11 108 118 -9 30 50 9 -72 -11 122 -679 4 8  --18 35 -7 -8 6 7 -4 -3 -6 -12 --5 0 20 -75 -9 -13  August 2007 (3) 382 Argentina -36 Australia 90 Brazil -8 Chile -26 Eurozone 53 Hungary 112 Indonesia -33 Japan 23 Malaysia 27 Mexico -60 New Zealand -- Philippines 12 Poland 26 Russia 3 South Africa -- South Korea 161 Turkey -34 United Kingdom -33 USA  (1) Shows variation between 10 May and 27 June. (2) Shows variation between 26 February and 5 March. (3) Shows variation between 19 July and 17 August. Source: Bloomberg. Something very simple reflects the proper functioning of our economy: in a moment where the world has seen a major retraction of credit operations, in Chile companies have continued to place long-term bonds in the private market. 8  BIS Review 97/2007  Conclusions It follows, then, that the Chilean economy has resumed a strong growth after the unexpected slowdown in the third quarter of last year. In parallel, due mainly to a different supply-side shocks, inflation has risen considerably. In this setting, monetary policy must, aside from anticipating the inflationary consequences of the business cycle, prevent second-round effects related to these shocks.
The sub-standard credit crisis in the US revealed that individuals in most cases did not manage to pass this test. Consequently, the debt load on individuals grew even heavier, while access to crediting became tighter, resulting in a big risk for their financial future. A similar analogy may be drawn for lending in foreign currency in some Eastern European countries. Secondly, financial education should be seen as a public good that brings about positive externalities to the society. It not only increases individuals’ financial welfare, but also affects directly economic policy efficiency undertaken by relevant authorities. The more-educated the public, the higher economic policy efficiency is. Maintaining inflation and economic activity under control is almost impossible in a society ailing from financial illiteracy. Macro-economic balances are achieved and maintained through monetary and fiscal policies instruments. The society needs to be aware of these instruments, understand them, evaluate stimuli and incentives, and properly respond to them. The important role of consumer behaviour for the policies success is clearly evidenced in the “rational expectations” theory. A simple intuition behind this theory is that rational individuals shape their expectations using the available information optimally. They respond to new information by adopting their behaviour to maximise welfare. In this case, individuals “equipped” with financial literacy read and understand developments in economic policies and respond to them rationally. This mutual understanding would drive the economy towards the desired direction.