Central banks are thus easily forced into a situation where they may need to intervene after the crash, injecting liquidity to avoid a financial crisis, or even at times loosening monetary policy to avoid deflation, but remain passive during the previous phase.
The problem however is that a monetary policy that limits itself to such a passive role – the so called “mop up after” policy – may increase moral hazard and plant the seeds for further and more acute imbalances in the future.