A negative output gap tends to dampen inflationary pressures, because it means that aggregate demand in the economy is weak relative to aggregate supply. Consequently, in the current circumstances it is possible to use monetary policy to try and boost domestic demand and, therefore, real output without jeopardizing our objective of controlling core inflation at 5 percent.
This post crisis thinking has presented statisticians with a new set of challenges – that of developing additional matrices to monitor financial stability. Indeed, the crisis has highlighted the importance of developing relevant statistics that are timely, internally consistent, and comparable across countries. 48.