What effects have valuation practices and leverage had on the cyclicality of the financial system? Acting through which channels? Is there a possible or desirable course of action for the official sector?
Coming to the issue of monetary policy and financial stability – If the market turbulence tells us anything, it is that the pace of financial innovation in recent years, the volume of transaction in certain markets, the amount of embedded leverage in the system, and the global nature of finance, have transformed the functioning of the international financial system.