But at the same time, I recognize that even after years of very low interest rates, the economic recovery in many economies remains weak. So it is not really surprising that some are questioning whether policy-makers, including central bankers, are doing the right thing. Has monetary policy lost its effectiveness? Is inflation targeting passé? We take these debates seriously.
During the expansion period of the credit bubble, it was complacency based on unfounded expectations about the unlimited availability of liquidity behind the aggressive risktaking attitude. By contrast, during the period of bubble bursting, it was fear of the exhaustion of liquidity that caused an extraordinary contraction of economic activity.