Evidently this makes forecasting outturns particularly difficult, especially when we add in the non-linearities associated with both interactive processes and discrete bankruptcy events. What do we mean by macroprudential concerns? In effect, they have to do with avoiding the kind of problems just described, with their attendant heavy costs in terms of output and employment.
The policy challenge is to find ways of reconciling the unquestioned benefits in efficiency arising from each of the three secular trends with the occasional risks arising from their joint evolution over time. How can we make these macroprudential concerns operational? Two things seem to be required.