The declines in volatility of output and inflation were regarded as a remarkable economic achievement, which we attributed to improvements in macroeconomic, including monetary, policy. Many of us also assumed that risk management at financial institutions had improved greatly. But now we feel differently.
Occurring as it did in such an optimistic environment, the sudden outbreak of the crisis has very seriously challenged our confidence in macroeconomic management and financial regulation. It has motivated us to carefully evaluate what went wrong, and what we must do to avoid any future recurrence of such a destructive calamity.