But the longer-term estimates remain lower than previous ones. This constrains the ability of monetary policy to stimulate cyclical growth, as the output gap – which is the difference between actual output and potential output – is not as wide as would be the case with a higher potential output.
Thus, if the growth problem is structural in nature, the scope for successful monetary stimulus is limited. When the global financial crisis struck, it was viewed as a cyclical downturn, and there was almost universal agreement on the need for stimulatory monetary and fiscal policies. While fiscal space was quickly eroded, monetary policies in the advanced economies remain highly expansionary and ‘unconventional’.