As a consequence, every attempt to fine-tune the economy bears the risk of policy errors with the corresponding negative effects on price stability. In my view, this line of research has very much strengthened the case against output stabilisation as a target of monetary policy – a case which was already made by Milton Friedman as early as 1961.
Third, the impact of a “too big to fail” financial institution is further aggravated if the entity is also a provider of a critical service in financial markets, such as payment and settlement systems, as would typically be the case with most large financial institutions.