Monetary policy with uncertain estimates of potential output
After years of neglect, potential output has drawn renewed attention as an input to monetary policy, appearing in a broad range of recent Federal Reserve system and academic research) At one level, it is the raison d' etre of an activist monetary policy. If potential output measures the economy's capacity to produce goods and services without adding to inflationary pressures, the goal of a stabilization policy should be to keep the economy operating as close to potential as possible.
