Conclusions In sum, our economies are now experiencing some important changes, both with regard to how goods and services are produced and traded, and the possibilities that agents face to organise their economic decisions over time. Most of the underlying forces causing these changes must be judged as largely beneficial per se. Yet as occurs with any new situation, we face much uncertainty that requires a comprehensive learning effort. As central bankers, we have learnt that price stability should be deemed as a highly valuable but insufficient achievement to promote financial stability. We have also gained some understanding as to why this is so, and, hence, on the need to take some steps towards making the goals of monetary and financial stability compatible and sustainable. Admittedly, our knowledge is still scarce in some important areas. However, as the interaction between the two objectives is becoming more pronounced, the role of central banks is probably more complex but also more relevant. 4  BIS Review 53/2006
But the implications of that shift were greatly amplified by a breakdown in the functioning of markets core to the maintenance of monetary and financial stability. Many of those longstanding vulnerabilities I mentioned a moment ago were in play. Liquidity imbalances between asset maturities and redemptions in money market and other open-ended funds exacerbated moves in asset prices. Gaps in liquidity planning meant some firms had to scramble to meet margin calls. And sharp disruptions in government and corporate bond markets raised questions about the role of leveraged investors, and the willingness and capacity of dealers to intermediate at times of stress. To avoid an even deeper economic collapse, the functioning of these markets had to be restored rapidly. And that was achieved through swift and decisive central bank action, using large-scale asset purchases and other tools capable of tackling both the economic shock and the market dysfunction. Since March of last year, G10 central bank balance sheets have risen by over $ trillion. This was an appropriate response to a truly unprecedented situation – just as powerful anti-inflammatory medicines are the right solution to a sudden and massive flare up. But such drugs are less well suited to treating long-term conditions – and there is every reason to believe that, absent further action, we will see more frequent periods of dysfunction in the very markets increasingly relied on by households and firms, if business model vulnerabilities persist and intermediation capacity remains strained.