We have to be clear, however, about what monetary policy can achieve in this respect. Our view is that long-term trend growth or potential output is determined by real factors in the economy. These include infrastructure, education, labour and product market efficiency, productivity growth, and institutional strength, to name a few.
Monetary policy can only impact on cyclical variations of growth around the growth trend. Monetary policy cannot be an engine for sustained growth. This requires structural reform, in order to arrest the declining trend of potential output that we have observed over the past few years. However, implementing structural reform is difficult and it requires strong institutions and political management.