The more we asked ourselves these questions during this period of extraordinary tumult, the more we recognized the need to broaden our policy response beyond monetary policy's blunt traditional tool.
The compression of spreads and risk premia coupled with the search for higher returns tended to lead to a higher level of investors’ appetite for risk. This, in turn, further inflated valuations based on very favourable expectations of future returns. Contributing to the underpricing of a unit of risk was also the opacity and complexity of structured financial products.