Interestingly, anecdotal evidence shows that analysts in financial intermediaries are sensitive to the downside risk of imbalances, but the conduct of the participants does not reflect the awareness. No doubt, this sense of dissonance is not new, as for example, stock markets went up after Mr. Alan Greenspan’s statement regarding irrational exuberance.
6 Although a build-up of tensions can remain unnoticed or deliberately be ignored for a long time, financial imbalances do have a destabilising impact in the end. This brings me to an important lesson regarding the monetary policy decision-making process. Monetary policy analysis should be broad in design in order to detect financial imbalances at an early stage.