John Williams suggests an alternative monetary policy framework

His argument: Potential output—the maximum amount an economy can produce over the long run—is an important indicator policymakers use to gauge a country’s current economic health and expectations for future growth. However, potential output can’t be observed directly, and estimating it is difficult, even with modern, sophisticated methods. Monetary policymakers are well advised to account for the perennial problem of uncertainty surrounding these estimates in devising and carrying out policy strategies. He suggests an alternative: In light of the reality that measuring potential output is very difficult despite the best efforts, it pays to avoid overreliance on these estimates when…

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