22 Since output gap measures were a key ingredient in the Fed’s monetary policy process, this  20  See Laubach (2009). 21  See Friedman (1947) and Brunner (1985). 22  See Orphanides, (2002, 2003 a, b). BIS Review 21/2010  7  automatically resulted in an excessively loose monetary policy, thus igniting and then perpetuating the Great Inflation.
The fact that the origin of the inflationary upsurge of the 1970s is to be found in the finetuning policies of that era provides a stark illustration of the dangers associated with systematic government intervention under normal circumstances – specifically, under circumstances which are not characterised by irreducible uncertainty.