In an application of this model to the great moderation period, they find the level factor associated with the perceived inflation target of monetary policy and the slope factor connected with the cyclical response of monetary policy with the economy.
In this regard, the Federal Reserve relies on off-site monitoring, on-site supervision, capital and other regulatory requirements, and policies that encourage sound risk management practices. We believe that market discipline -- supported by appropriate accounting standards and public disclosure -- complement these supervisory efforts by fostering healthy financial institutions and efficient capital markets.