The ability to undertake transactions at – or close to – prices that reflect economic fundamentals facilitates the proper allocation of capital, as well as the management and transfer of risk. It also gives borrowers the confidence to plan, and savers to finance, productive investment. Efficient markets also allow for the transmission of monetary policy by allowing changes in policy interest rates to be reflected quickly across financial markets and assets. The rise in automated high-frequency trading has, however, also increased the incentive for market participants to protect information that could signal their trading intentions. This is to reduce the risk of being disadvantaged by trading with other – faster-moving – market participants, and thus receiving a worse price (a phenomenon sometimes referred to as ‘slippage’). 6  This strategic interaction has manifested itself in two observable trends. First, there has been a partial reversal in the trend toward greater price transparency I highlighted earlier. Market participants have embraced other forms of trading, which differ to traditional exchanges either by offering less price transparency and/or a narrower range of counterparties. 4  This effect has been explicitly modelled by Jovanovic, B and Menkveld, A (2011) and empirically documented in a number of instances and trading venues – e.g. by Hendershott, T, Jones, C and Menkveld, A (2011) for the NYSE, Riordan, R and Storkenmaier, A (2011) for the Deutsche Börse, and Hasbrouck, J and Saar, G (2013) for the Nasdaq.
Although the structural balance policy was launched in this decade, fiscal efforts to smooth the copper price fluctuations began in the 1980s, with the copper stabilization fund. In fact, throughout most of the 1990s, the structural balance was near 1%. This countercyclical fiscal policy makes the effective fiscal balance highly correlated with the price of copper. Thus, our fiscal policy has been contributing for more than 20 years to stabilizing the Chilean economic cycle. As a result of the application of the rule, a large amount of resources has been saved in sovereign funds when the price of copper has been high. 4 In the period 2007-2008, 22 billion US dollars were placed in these funds, of which 20 billion – the equivalent to 12% of GDP – came from the accumulation of new funds, and the difference was the funds’ net financial gain. This has had significant implications in the current economic scenario. Since last year, particularly as from September, the world has been enduring the worst recession in the last 60 years and our country, despite being in an excellent position to address these shocks, has not been spared its consequences. But today, our fiscal policy has been able to make an important reactivation effort, thanks to the prudence with which the years of high copper prices were managed. The other critical elements in our macroeconomic policies that favor stabilization are monetary and foreign exchange policies. Although they play a somewhat more subtle role than fiscal policy, they are no less important.