For example, the lack of liquidity in the interbank market impaired the price-finding mechanism along the yield curve. As a result, our monetary policy impulses were not evenly transmitted across countries or adequately along the yield curve. How should monetary policy be conducted in such a fragmented world?
Unfortunately, that long period of innovation and heightened financial activity exploded into an unsustainable credit boom that was marked by a failure to appropriately evaluate risks in lending to households and businesses, excessive leverage by both borrowers and lenders, and increased reliance on complex and opaque financial instruments that were poorly understood and fragile under stress.