What do I mean by "output gap?" That term refers to the difference between actual output - what the economy is producing - and potential output - the maximum amount the economy could produce without triggering higher inflation. Another way that we sometimes refer to this concept is to talk about how close the economy is to its production capacity.
As Hong Kong and the mainland develop increasingly close economic ties in both trade and investment, close co-operation between the two monetary authorities becomes even more important. The two monetary authorities must, therefore, strengthen further the present sound co-operation of central banking functions, including monetary management, banking supervision and the development of the financial infrastructure. The third principle concerns co-operation in prudential supervision.