10 In the model, accommodative monetary policy not only boosts economic activity but also encourages greater risk taking in the financial sector. And, if sustained, increased risk taking ultimately leads to higher vulnerabilities and a more volatile economy. Monetary policy faces a trade-off in which enhanced macro stabilization today comes at the cost of less stability down the road.
For example, the additional tariffs on Chinese goods and the threat of a trade war with the United States are damaging relations between the two countries, with negative repercussions for global equilibrium. This can have an adverse effect on the entire world economy, as there are only ever losers in a trade war.