“When the going gets tough, central banks hope for a miracle”
Posted July 17, 2008on:
Key points for me were about the “dual supply shock”:
- Don’t react to the relative price movement – react to it’s impact on inflation expectations,
- Recognise that this relative price movement implies a lower potential rate of output when looking at your output gap (*).
I think we sometimes forget about the second point – but it is very important given what is currently going on in the world.