Under these circumstances, it can be necessary to set minimum standards for real-estate lending. Before such a – third – step is taken, however, it is necessary to assess the risk situation as accurately as possible.
Resourceful as he was, Odysseus ordered his crew to tie him to the mast of his ship. That way, he wouldn’t (Tonne) be able to succumb to temptation. Applying this tale to the present day, monetary policy decision makers need to credibly commit to the objective of price stability if they want to overcome the time inconsistency issue and avoid distorting inflation.