Monetary policy cannot by itself transform a jobless recovery into a job-generating recovery. If anything, keeping the cost of capital excessively low may encourage capital-intensive investment, rather than labour-intensive capital expenditure. 6. Core inflation is not a good predictor of headline inflation, nor of underlying inflationary pressures emerging in a global economy. 7. It is very difficult to measure output gaps.
This is not a new finding, but it tends often to be forgotten. Looking at the period before the crisis, what looked like as a large output gap in 2003 turned out to be a very small one a few years later. Therefore, it is very dangerous to calibrate monetary policy mainly on the basis of this variable (see Charts 6 and 7).