It is now clear that a robust financial system requires the co-operation of all financial regulatory bodies, since illiquidity can be triggered by the insolvency of a single institution, shoddy infrastructure, or poor transparency.
When long-term economic growth potential is increasing and people’s views on prices are changing, the real interest rate level that is considered to be neutral to economic activity — the natural rate of interest — will rise and the observed real interest rates will decrease. This, in turn, is expected to further enhance the effects of monetary easing.