New Frameworks for Monetary Policy Analysis in an Era of Crises - opening remarks

Good morning. It is a pleasure for me and for the Central Bank of Chile to be hosting the Fourth Annual Fall Conference of the International Journal of Central Banking. Since its beginnings, this conference has gathered distinguished academics, policymakers, and researchers from global universities and central banks to listen to new research and have an open discussion on topics of interest for academics and central bankers. This is not the exception. We meet today and tomorrow to discuss new frameworks for monetary policy in an era of crisis. This discussion is appropriate and necessary. The events that have transpired since the collapse of Lehman Brothers and the ensuing financial distress, global recession, and sovereign problems have led the profession to reassess the role of financial markets as sources of shocks and as amplifying mechanisms for them. In this talk I will discuss some of the lessons and challenges for monetary policy that can be drawn from the recent crisis from the perspective of a small open economy like Chile. I will first address the challenges that have arisen from the need to incorporate financial frictions in our modeling frameworks. Next, I will extend this discussion to the challenges faced by small open economies within a context in which global financial stress has induced significant movements in capital inflows and exchange rates.