Monetary policy when the spyglass is smudged
Early Elias (),
Helen Irvin () and
Oscar Jorda ()
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Early Elias: Federal Reserve Bank of San Francisco
Helen Irvin: Federal Reserve Bank of San Francisco
FRBSF Economic Letter, 2014
An accurate measure of economic slack is key to properly calibrating monetary policy. Two traditional gauges of slack have become harder to interpret since the Great Recession: the gap between output and its potential level, and the deviation of the unemployment rate from its natural rate. As a consequence, conventional policy rules based on these measures of slack generate wide-ranging policy rate recommendations. This variability highlights one of the challenges policymakers currently face.
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