In this case, trend growth would sustain the prevailing unemployment rate and would therefore be accompanied by modest upward pressure on the inflation rate. Compensation per hour has been edging upward, consistent with the unemployment rate being slightly below NAIRU; on the other hand, core measures of inflation have been trending lower, with the opposite implication.
In crisis times, there is the risk that crucial inputs such as macroeconomic variables are under or over-estimated and that adverse scenarios become unrealistic – either too benign or too severe. In consequence, outcomes become ambiguous and difficult to interpret. Additionally, the potential pro-cyclical effects of stress tests should be explored.