These two exercises indicate a need to explain more fully why policy is deviating from what is suggested by these rules. No doubt, there is a variety of views on this issue, but I think the policy process itself and our communication of policy would benefit greatly from producing a detailed monetary policy report with some of the features I have discussed today.
Interest rates above neutral, for example, will generally discourage people from investing and consuming and encourage more saving, leading inflation to slow. So if the policy interest rate is at its neutral level, monetary policy will be neither expansionary nor contractionary.