I talked about the idea of developing a grand synthesis—a utopian economic model capturing how the financial system would affect the real economy and vice versa, and helping us deliver on our inflation-control mandate. We may never reach that utopia. But the good news is that we have made significant progress. Let me mention three important improvements.
First, a new concept that was developed at the International Monetary Fund—growth at risk—is now being used by Bank staff to help us understand the links between the financial sector and the real economy. It captures the rise in financial vulnerabilities and the downside risks to economic growth associated with them.