This was an important consideration after the stock market crash of 1987, when demand for liquid deposits raised reserve demand; and again after 9/11, when the destruction of buildings and communication lines impeded the flow of credit and liquidity.
Second, we must determine whether the stance of monetary policy has to be adjusted to counteract the effects on the economy of tighter credit supplies and other consequences of financial instability. Policy adjustments also can help head off some of those effects in that, by showing that the central bank recognizes the potential seriousness of the situation, they bolster confidence.