Thus, risk is unavoidable, and central banks need to conduct policy in a manner that takes account of uncertainty in its various forms, as they strive to maximize public welfare. But what exactly does this mean? The literature on this topic extends at least as far back as William Brainard’s original paper on uncertainty and policy almost forty years ago.
Although buy-side participants tended to believe that they were not directly affected given the short duration of the price swings that day, some noted that more frequent episodes of high volatility could lead them to demand larger risk premiums. For my part, I do realize that a single 12-minute roundtrip episode may not mean that much in the end.