In recent months, for example, this type of risk has been central to the repricing of many structured credit products, as investors have struggled to understand how potential losses in subprime mortgages might filter through the various layers of securities linked to these loans. While valuation risk is relevant for individual investors, monetary policymakers are concerned with macroeconomic risk.
In particular, strains in financial markets can spill over to the broader economy and have adverse consequences on output and employment.