Accordingly, we will continue to monitor very closely all developments over the period ahead. Regarding fiscal policies, the latest projections by the European Commission point to a sharp increase in the euro area general government deficit and debt ratios in 2009.
Moreover, a number of studies have shown that the problem of measurement error is likely to be particularly severe for variables that cannot be observed directly. Take the output gap and the “neutral” level of real interest rates as two variables which figure very prominently in much of the recent literature on optimal monetary policy.