It presupposes, among other things, that higher output cannot be achieved in the face of persistently higher inflation and that the level of prices in money terms and the rate of inflation in the longer term depend on monetary policy.
The link between the Reserve Bank’s modelling activities and its forecasting process is indirect and far from the mechanical, “black box” approach favoured by scientists. There is no mechanical process in which the forecast directly determines the policy decision. It must be remembered that the econometric models and forecasts are tools to help the Reserve Bank solve economic problems.