For the time being, however, they have to accept greater volatility in the financial markets as a fait accompli. Challenges for monetary policy The market economy provides its own disciplines and its own mechanism for adjustment when disequilibrium develops in the system.
The foregoing analysis of financial developments in countries afflicted by the turbulence in world financial markets last year provides a brief description of the market mechanism of self-adjustment. The outflows of capital forced a depreciation of the currency, higher interest rates and inflationary pressures in those countries from where foreign investments were repatriated.