Because current inflation is affected by inflation expectations, the smaller increase in expected inflation will lead to a smaller increase in actual inflation as well. And because many shocks that may lead to inflation, such as unexpected surges in spending, also cause movements in output and employment in the same direction, the maintenance of price stability promotes the stability of the real economy.
This approach has had considerable benefits, including increased access of small and medium-sized borrowers to the broader capital markets, but pitfalls in its implementation are now evident. To describe how the originate-to-distribute model works, let's consider a simplified description of how a mortgage loan is made and financed within this framework.