Has financial development made the world riskier?

This paper by Raghuram Rajan discusses the implications for monetary policy and prudential supervision of an increase in financial-sector-induced turmoil for some economies, due to developments in the financial sector.

Developments in the financial sector have led to an expansion in its ability to spread risks. The increase in the risk bearing capacity of economies, as well as in actual risk taking, has led to a range of financial transactions that hitherto were not possible, and has created much

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