In a speech last September on Lessons from the Global Crisis, he went over the experience of a number of countries and attempted to draw some conclusions, which are of relevance to what I have been discussing. In his view (and I will quote): “The mere existence of a diversified financial system may well insulate all aspects of a financial system from breakdown.
Doing this well requires a deep knowledge of the data mixed with a goodly dose of economic theory and economic judgment. Members of the Board staff continuously analyze the arriving data to learn what they can about the level and composition of economic activity, inflation, and other key aggregates.