participants must still make decisions and take actions with incomplete knowledge about the condition of their counterparties. actual ( or perceived ) information asymmetries can increase enormously during times of heightened market volatility or economic stress. in addition, in such circumstances, investors may become very uncertain about the behavior of other market participants and the resulting path of asset prices and extent of market liquidity, creating a situation in which each market participant waits to see how other investors will react. when this happens, the typical correlations derived from historical experience tend to break down, liquidity may be more costly to obtain or unavailable, normal risk management strategies may no longer be useful, questions about counterparty solvency escalate, and the result can be a financial crisis. in times of such high uncertainty, it is human nature to act very cautiously. investors uncertain about what shocks other market participants have experienced and unsure about what those other market participants are likely to do tend to withdraw from potentially risky financial activities and to hold safer and more liquid assets, such as government securities. the views expressed are my own and do not necessarily reflect the views of other members of the board of governors or the federal reserve more generally. diana hancock and wayne passmore, of the board ’ s staff, contributed to these remarks. as a consequence, creditworthy borrowers may not be funded, just like in the old days when banks fell into crisis. these disruptions in the flow of credit in turn can have real effects on the macroeconomy. moreover, these real effects can create feedback effects on market participants that exacerbate the original financial crisis. these motivations and reactions persist in the twenty - first century, and thus so does the possibility of financial crisis, even if the key propagation mechanisms for crisis in our financial system may have changed. the shift from a bank - dominated financial system to a combination of centralized and decentralized markets has increased the importance of market liquidity for determining asset prices and for managing portfolios. the increased importance of markets also has created new and complex interactions among participants in the financial system and heightened the reliance on key market utilities. we are in the process of adapting the tools that were developed to prevent and manage financial crises in a bank - dominated financial system to prevent and manage financial crises in the more market - dominated financial system. this is an ongoing process that is very much informed by our experience with past financial crises. in that regard, the 1987 stock market crash and the liquid

is of material importance to us. social media has also affected the way we consume news and interact with each other. this medium is playing an increasingly important role in society and influencing macroeconomic and financial outcomes. as an example, corbin fox will present his work with coauthors tomorrow on the effect of social media on the bank runs that took place earlier this year. on the methodological side, machine - learning techniques have also had a profound effect on how we think about modeling complex macroeconomic outcomes. this morning, philippe goulet coulombe will discuss how neural networks help model the volatility of various macroeconomic variables, and joel marbet and yucheng yang will discuss how new methods are being used to solve models with heterogeneous agents, which are crucial to assess the distributional consequences of economic policies. 2 / 3 bis - central bankers'speeches advances in natural language processing and machine learning have also improved our ability to forecast and nowcast a wide range of macroeconomic and financial indicators, a topic that will also be covered in a few sessions tomorrow. in closing, i hope you have many fruitful and informative conversations in this room and during breaks about the usefulness of nontraditional data and new techniques for macroeconomic analysis. i also encourage you to continue your discussions after the conference ends and to seek opportunities for joint work so that we can further develop our understanding of these exciting new tools. welcome to the federal reserve! i hope you enjoy the conference. 1 the views expressed here are my own and not necessarily those of my colleagues on the federal open market committee. 2 see tomaz cajner, laura j. feiveson, christopher j. kurz, and stacey tevlin ( 2022 ), " use of nontraditional data, " in wendy edelberg, louise sheiner, and david wessel, eds., recession remedies : lessons learned from the u. s. economic policy response to covid - 19 ( washington : brookings institution press ), pp. 315 – 46. 3 see lisa d. cook ( 2023 ), " generative ai, productivity, the labor market, and choice behavior, " speech delivered at the national bureau of economic research economics of artificial intelligence conference, toronto, canada, september 22. 3 / 3 bis - central bankers'speeches