At the core of the crisis lay an interplay between macro imbalances which had grown rapidly in the last ten years, and the financial market developments and innovations which accelerated over the last 10 to 15 years, partly under the stimulus of the macro imbalances1.
In the years leading up to the financial crisis, policy framework for the financial sector globally was guided by a few doctrines. One, monetary policy should focus only on price stability (the inflation targetting framework). Second, price stability ensures financial stability, the latter being pursued through micro prudential regulatory and supervisory framework.