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.