One consequence of the crisis has been that central banks focus much greater attention on the state of the financial sector, since weaknesses in it has been a drag on aggregate demand and has blunted the monetary transmission mechanism.22 Since macroeconomic models typically incorporate few, if any, financial variables from the sector (IMF 2010), much of this analysis is conducted using a range of financial variables.
To mention but a few, central banks look at variables such as the spread between secured and unsecured interbank rates as a proxy for credit risk in the banking sector, the level of trading in various money market sectors, and activity in key credit markets.