Besides giving rise to the too-big-to-fail problem that has been at the heart of the current financial crisis, the size of these financial institutions has profound implications for the way investment portfolios are constructed and assets are traded, because it makes a large difference whether an agent wants to buy or sell 100 shares or 100,000 shares.
This approach seeks to clarify how policymakers will alter policy as economic conditions change, that is, to describe a reaction function. By being more transparent about how policy will evolve as a function of economic conditions, this approach can help the public form more accurate expectations about the future path of monetary policy.