A new measure of us potential output, inflation forecasts, and monetary policy rules

Charles Harvie, Hyeon Seung Huh

Research output: Contribution to journalArticlepeer-review

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.

Original languageEnglish
Pages (from-to)611-631
Number of pages21
JournalManchester School
Volume77
Issue number5
DOIs
Publication statusPublished - 2009 Sep

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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