Likewise, complex and difficult-to-value financial instruments could be exploited as vehicles for profiting from insider trading or market manipulation, although, as history shows, simpler instruments can be used in this way as well. Policymakers must be confident of their ability to detect such market abuses when they occur.
In the very near term, policy-makers can do little more than cushion the blow. It is worth spending a moment to emphasize why the central bank’s inflation targets matter so much, even at a time such as this. Inflation targets were put in place around the world when the dominant worry was higher inflation. Today, the situation is very complex.