Speculation in construction was also less prevalent during the upswing at the end of the 1990s than during the rise in activity a decade earlier. Production of property has been relatively low, and projects have had pre-contracted tenants to a greater extent. In addition, the property crisis at the beginning of the 1990s was affected significantly by the structural changes that occurred during the period. The deregulation of the credit market together with the changes in economic policy required substantial adjustments in the market. So the present situation is not a cause for concern in the same way as the situation at the beginning of the 1990s. Some thoughts on the future The fact that the situation is not a source of concern does not mean that I am predicting a significant recovery in property prices. An increase in economic activity will of course stimulate demand, which sooner or later will apply upward pressure on prices. But at the same time I can see several factors which could restrain a rise in property prices, especially with regard to office premises. BIS Review 38/2003  3  Firstly, there is a risk that demand for office premises will be weaker than the general level of demand in the economy. From the mid 1990s, there was a gradual improvement in economic activity in Sweden, which resulted in higher employment in general, but particularly within office-intensive businesses such as IT and telecommunications.
The transmission of monetary policy The Central Bank of Chile’s monetary policy operates largely through its effects on the cost of lending, as it influences the cost of bank financing. The Bank’s main instrument is the monetary policy interest rate, or MPR. It is worth noting that the level which the Board chooses every month for the MPR represents an objective for the cost of overnight lending between banks. In other words, the Central Bank operates in the interbank market, seeing that the interest rate at which banks lend to and borrow from each other overnight approaches the MPR. Therefore, it is important to understand how this interest rate, which operates in a very specific and well defined market (among banks and for a term of one day only), affects the spending and investing decisions made by households and firms even over several years. The explanation for this phenomenon is that, in normal circumstances, what matters is not only today’s level of the MPR, but the whole future path expected by the market for such interest rate. This is what ultimately affects the entire yield structure. In other words, for a five-year loan, for instance, it is more important for the potential borrower to have an idea of how the MPR will be behaving in the next five years that to know its current level. The above has first-order implications on the conduct, implementation and communication of monetary policy.