Moreover, these estimates do not capture the range of confidence effects that would permeate the rest of the economy under such a difficult scenario, so the story could even be worse. From this monetary policy-maker’s perspective, that’s an unattractive alternative.
There is also need for more study of the dynamics by which stress at large, interconnected institutions can have negative effects on national and global financial systems. In fact, what may be needed is a new subdiscipline that combines the perspectives of industrial organization economics with finance.