The inability to detect incipient problems and the time it takes for any economic policy to exert effects restrict the scope for corrective measures, where lags can even make them counterproductive. 9 In addition, even if detection were not a problem, authorities may be unwilling to implement policies to counter a likely imminent crisis.
This may reflect capture by the regulated entities, which tend to evaluate most growth developments favorably, including unsustainable credit expansions. Alternatively, reluctance to act preemptively may result from the authorities’ preference to react only after a bubble collapses.