Description

The world is undergoing a severe crisis. Chile, despite its sound financial system, will not be spared. This paper opens with a discussion of the effects of monetary policy on asset prices and financial stability. Then it examines the effects of the crisis on inflation and output. Inflation went from massive, unexpected increases to sharp declines due to widened gaps and reduced international commodity prices. The effects on output can be explained by the domestic economic cycle, real and financial effects of the international crisis and the global confidence crisis. Finally, the paper reviews the different policies implemented by the Central Bank of Chile to ensure reaching its objectives of inflation and good functioning of the internal and external payments system, where the substantial monetary easing deserves mention.