The issues include the suitability of internal and external data sources, the appropriate historical period to use in producing estimates, and the manner in which historical data and loss estimates should be linked to the bank’s current exposures. These and other issues will be challenging and will rightly occupy much of our attention over the coming months and years.
Going beyond monetary policy as a crisis prevention tool In thinking about enhancing the role of central banks, we should reconsider two notions that have helped to advance our analysis. The first is the “lean versus clean” debate. As Lars Svensson has compellingly argued, monetary policy is too blunt an instrument to be used to mitigate financial vulnerabilities.