At the same time, policy should take for granted that trend productivity growth is particularly prone to measurement errors and adopt an approach which is robust to mismeasurement. One of the proposed explanations of the so-called U.S. Great inflation of the 1970s relies exactly on the hypothesis that a major misperception of the economy’s productive capacity occurred at the time.
The central bank forecasts the inflows to and outflows from the system resulting from its own transactions and transactions  3  Of course, the way the central bank conducts its own operations will have an effect on market conditions more generally.