For example, monetary conditions in the United States have recently tightened noticeably, even though the funds rate has remained unchanged for some time at 1 percent - a consequence of the expectations about future rates engendered in the financial markets. I will return to this point in my concluding remarks. 3  See Amato and Laubach (1999) for further discussion.
These authors use simulations of a small macroeconomic model to show that gradualism can improve the Fed’s ability to affect long-term rates and thus stabilize the economy. 4  BIS Review 30/2004  Gradualism and financial stability A third explanation of gradualism is that a slower adjustment of policy rates enhances financial stability.