-
The advantage of a central bank not being ‘ahead of the curve’
Imagine the following economy. Growth has been strong for a number of years: 2.7% 2014, 3.8% 2015, 3.1% 2016 and is expected to be above 3% again in 2017. The OECD also think the output gap is positive i.e. output is above the sustainable rate. Inflation was bobbing around zero for a few years, but since 2016 has gradually crept up to the target of 2%. It was just over 2% in the summer, but dipped just below target in the last two months. Fiscal policy is broadly neutral, and is expected to remain so. The unemployment rate is still slightly above 6%, but the average rate since the crisis in the early 1990s is over ... (full story)