I contend that firms with larger appetites for risk will be relatively more willing to take on additional risk if they can model and manage it better. Without formal risk management, a firm would still be able, in times of high market volatility, to sense that its risk had risen. But it would be uncertain about exactly how the market volatility had affected it.
For the past four years, a major challenge for the Federal Reserve and many other central banks has been how to address persistently high unemployment when the policy rate is at or near the effective lower bound. This troubling situation has naturally and appropriately given rise to extensive discussion about alternative policy frameworks.