3  Lending through these temporary liquidity facilities was fully secured, as with the standing discount window facility, and almost every facility was designed to provide a useful source of funding during stressed financial market conditions but to be an unattractive source of funding once markets returned toward more normal functioning. All of the temporary short-term lending facilities had ceased extending new credit by early 2010 and were closed, although reciprocal swap facilities with foreign central banks were restored later that year, and some longer term loans arranged under the TALF remain outstanding. 4  See the following for further information about the Desk’s Primary Dealer Survey, along with historical questions and aggregated responses: http://www.newyorkfed.org/markets/primarydealer_survey_ questions.html. 5  This staff unit produces an annual report reviewing open market operations and other developments influencing the Federal Reserve’s balance sheet. For a list of such reports, see as follows: http://www.newyorkfed.org/markets/annual_reports.html. BIS central bankers’ speeches  3  Lessons learned on market interactions through prism of an economist From the onset of the financial crisis until earlier this year, I acted in the capacity of a research economist at the New York Fed. I want to turn to some of the lessons learned as an economist trying to make sense of the crisis through economic theory and how it could be easy to misdiagnose the crisis without the multitude of interactions with financial markets that I have described. I will also apply these lessons to the current controversy about how economics should move forward after the crisis.
Thus, while the overall impact on businesses stands at slightly over 2 pp, it is expected to top 5 pp in the three most affected sectors.22 For households, given that energy expenditure accounts for a larger proportion of the consumption of lower-income households, the price rises seen in 2020 and 2021 will hit this group the hardest. More broadly, the Financial Stability Report also sets out the results of banking industry stress tests for two potential stress scenarios (dubbed “adverse” and “severe”) for the period 2022-2023. The use of this type of extreme scenarios, which are plausible but have a relatively low probability of occurring, is consistent with the goals of prudential regulation, which require that banks have sufficient capital to absorb unexpected losses. The adverse scenario simulates an increase in energy prices in addition to that seen in early 2022, and a greater persistence of international trade bottlenecks. The impact on prices would accelerate the monetary policy response, while also entailing a worsening of financial conditions. Meanwhile, under the severe scenario, the price shocks are slightly more significant than under the adverse one, while including a more marked worsening of households’ and firms’ confidence, triggering further falls in the main domestic demand variables (consumption and investment). 21  Specifically, increases of 22% and 25% in average price levels for 2022 and 2023, compared with the price used in the December projections.