Rachel and Summers (2019) give reasons why the effective change may be larger. -4weakness puts downward pressure on inflation, which can raise real interest rates and reinforce the challenge of supporting needed job growth. In addition, over time, inflation has become much less sensitive to tightness in resource utilization.
Work has been also underway to mitigate procyclicality in the financial system, with recommendations issued by the FSF earlier this month covering the bank capital framework, loan loss provisioning practices, and ways of dampening the adverse interaction between leverage and valuation. And the FSF Principles for Sound Compensation Practices, also published this month, will align compensation-related incentives with the long-term profitability of firms.