Government finances and economic policy Finally, let me turn to an even broader category of the current challenges, the challenges to economic policy. When the monetary union was planned in Europe, there was much debate about the degree of economic convergence between countries that is necessary for forming a monetary union.
Growing uncertainty about asset and collateral quality squeezed credit and dried up liquidity. The downward spiral of the financial system, unseen in developed countries for eight decades, called for prompt and extraordinary policy actions. Monetary policy responses Management of short-term interest rates became the key policy tool and the stabilization of inflation the central policy objective during the Great Moderation period.