Since it is the distance from full employment that matters in terms of moving inflation in the Phillips curve, if that distance is underestimated inflation may remain subdued even as measured slack gets smaller.
There are numerous potential causes of this mismeasurement, including: measures of unemployment that ignored the effects of part-time work and underemployment[5]; revisions to potential output which mistook cyclical changes for structural trends[6]; or a failure to fully account for external factors that added to euro area slack, such as relative demand imbalances linked to the trade surplus.