Riksbank research highlights significance of output gap for policy makers
A working paper, released by the Riksbank on April 16, finds that policy makers should "pay more attention" to the output gap when forming monetary policy.
Author Roberto Billi writes that the output gap, which is the measure of economic output relative to the potential of the economy, is often subject to revision after policy decisions have been made. This, Billi says, presents policy makers with a dilemma, if the amount of spare capacity in the economy were to change from the initial forecasts
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