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A New Measure Of Us Potential Output, Inflation Forecasts, And Monetary Policy Rules

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Author Info
CHARLES HARVIE
HYEON-SEUNG HUH
Abstract

This paper proposes a new measure of potential output for the USA. The key idea is that potential output is constructed as the level of output which would correspond to a forecast of no inflation change over the policy horizon. The resultant output gap has a clear interpretation as a measure to gauge future inflationary pressures. It also exhibits better predictability for future inflation changes in comparison with previous output gap measures. Simulation results further demonstrate its usefulness as a feedback variable in the Taylor monetary policy rule for interest rates. Copyright © 2009 The Authors. Journal compilation © 2009 Blackwell Publishing Ltd and The University of Manchester.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1467-9957.2009.02114.x
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Article provided by University of Manchester in its journal The Manchester School.

Volume (Year): 77 (2009)
Issue (Month): 5 (09)
Pages: 611-631
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Handle: RePEc:bla:manchs:v:77:y:2009:i:5:p:611-631

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