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  • Editors' Summary
  • Raquel Bernal, Ugo Panizza, Roberto Rigobón, and Rodrigo Soares

This issue of Economía consists of a keynote speech and three papers. The keynote speech, which focuses on the art of modern central banking, was delivered by José De Gregorio at the 2011 LACEA-LAMES Conference hosted by the Universidad Adolfo Ibáñez in Santiago, Chile. The first paper studies the Mexican banking system over the period 1997-2007, with a special focus on the effects of foreign bank entry; the second paper provides new evidence on the political business cycle in the Organization for Economic Cooperation and Development (OECD) and Latin American countries; and the third paper analyzes whether the expansion of the Panama Canal will affect the country's poverty and inequality levels.

There are many reasons why the annual LACEA conference is one of the most exciting events on an economist's calendar. One of the key factors is that while the conference organizers are resolute about maintaining the highest academic standards, the papers presented at the conference are never pure ivory-tower pieces. They are always rooted in real-world problems, with a strong policy focus. Publishing rigorous but policy-relevant papers is, of course, also the mission of Economía.

Economists like José De Gregorio are central to the success of LACEA and Economía in promoting a rigorous policy-oriented discussion on the main issues that concern the region and the world's economy. José has a sterling academic background and publication record, but he was never an ivory-tower economist and has never been afraid to get involved in policymaking. After serving his country as the Minister of Economy, Mining, and Energy, José joined the Board of the Central Bank of Chile in 2001, was nominated vice governor in 2003, and became the Bank's Governor in 2007, a position that he held until the end of 2011. José has always been close to LACEA and Economía. He was the main organizer of the Fourth Annual LACEA Conference, which took place in Santiago in October 1999; he has published two papers in past issues of Economía; and he is now part of the Association's executive committee. As editors, we are [End Page vii] therefore excited to publish José's keynote speech summarizing what he learned while leading one of the region's most successful central banks.

De Gregorio's speech starts with a flash review of the history of inflation targeting, with a special emphasis on its practical applications in emerging market countries. It then discusses the role of central banks during financial crises and makes the point that while many central banks in advanced economies did not pay enough attention to financial stability, emerging market countries have always placed guaranteeing financial stability at the core of their central banks' mandate. This focus on financial stability has contributed to the resilience of many emerging market countries during the crisis. In discussing the links between monetary policy and financial stability, de Gregorio dismisses the idea that the crisis was caused by lax monetary policy in the United States. However, while he emphasizes that asset bubbles do not necessarily lead to financial crises, he also recognizes that the so-called Greenspan put may have led to excessive risk taking and thus contributed to the crisis. Among the instruments for guaranteeing financial stability, de Gregorio spotlights the importance of macro-prudential regulation, procyclical capital buffers (dynamic provisioning), and the need to monitor currency mismatches and the use of derivative products. With regard to the interactions between monetary policy and financial stability, he starts from the Tinbergen principle requiring as many instruments as policy targets. He then argues that in a perfect world, the interest rate should be used to manage monetary policy and to achieve the inflation target, while macroprudential tools should be used to guarantee financial stability. However, we do not live in a perfect world, and there are important interactions among different policy instruments. According to de Gregorio, one of the main challenges of modern central banking is to coordinate these instruments and to ensure that rather than negating each other's actions, each policy instrument reinforces the...


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