Dysfunctional financial markets impair the effectiveness with which monetary policy is transmitted to the rest of economy. Furthermore, financial crises often force central banks to intervene as lenders of last resort, and the magnitude of the shock they imply makes it more difficult or even altogether impossible for these institutions to achieve their targets.
But we also expected that the pace of expansion would pick up in the second  2  BIS Review 99/2001  half of 2001 and strengthen further in 2002, returning us to potential output levels. So, although we proceeded to loosen monetary policy, we did so at a measured pace.