Second, the complex structure of securitised products made it difficult for the ultimate holders to assess the quality of the underlying investment. This perpetuated the boom, as it took time for investors to discover and reassess the underlying risks. Third, international imbalances and their potential to encourage liquidity creation on a global scale acted as the macroeconomic – and perhaps most powerful – multiplier.
Implications for the future The ECB journey that I have recalled here can give rise to two obvious questions. The first one relates to economic analysis: were the mainstream macroeconomic models used before the crisis appropriate to help guide policy decisions, or should these be changed?