Therefore, a stabilizing policy is not limited to smoothing consumption volatility, but contributes to the growth rate and to improving per capita consumption. It is important to note that there is “bad” uncertainty, regarding which we must guard stability, but there is also “good” uncertainty, as shown by a study I conducted with Segal and Shaliastovich (2015).
It is also one of the factors that contributed to prolonged tensions in the interbank market as banks were reluctant to lend to each other to minimise counterparty exposures. These markets are crucial for banks’ liquidity managements and also for the transmission of monetary policy. The work on funding and market liquidity also offers possible mechanisms for the resolution of liquidity spirals.