-6policy to return output to potential. If the central bank chooses to use the short-term interest rate as its active policy tool, and keeps its balance sheet on hold, the current and expected path of short-term interest rates rises, putting upward pressure on long-term bond yields and causing the real exchange rate to appreciate.
In particular: •  At the request of the Group of Seven, the Financial Stability Forum (FSF) is reviewing several important issues such as the management of risks – especially liquidity risk – by the institutions subject to regulation, the appropriateness of capital requirements, the full consolidation of the assets and liabilities currently kept off banks’ balance sheets, and the transparency and valuation of structured financial products.