If the economy is producing at potential, we would quickly see shortages and a sharp rise in inflation. People will also start expecting the central bank to disregard inflation (that is, be hopelessly dovish according to the bird analogies that abound) and embed high inflationary expectations into their decisions, including their demand for higher wages.
If contrary to expectations, the central bank is committed to keeping inflation under control, it may then be forced to raise interest rates substantially to  2  For example, Bruno and Easterly (1995) suggest 40 percent as a danger point, beyond which increases in inflation are very likely to lead to a growth crisis.