However, there is some evidence that capital standards, accounting rules, and other regulations have made the financial sector excessively procyclical – that is, they lead financial institutions to ease credit in booms and tighten credit in downturns more than is justified by changes in the creditworthiness of borrowers, thereby intensifying cyclical changes.
The equations also include the gap between actual short-term interest rates and the public’s long-run expectations of short-term rates, gleaned from the yield curve.