Another consequence of using HP filters to find the trend-based GDP gap is that one risks interpreting an increase in growth that is due to a temporary rise in productivity as an increase in resource utilisation. But in a situation with sticky prices an increase in productivity may actually lead to a decline in resource utilisation as the increase in productivity makes it possible to use fewer resources to produce the same volume as before. If we were in such a case to use a trend-based output gap as a base, there is a risk that monetary policy would become contractionary when it needed to be expansionary. The difficulty with the trend-adjustment method is thus to distinguish from current developments what constitutes changes in the trend and what are deviations from the trend, that is, changes in resource utilisation. Flexprice gap A theoretically interesting measure of resource utilisation that has gained increased attention in the research on monetary policy is the so-called flexprice gap. This is a measure that relates actual output to potential output in an economy with entirely flexible prices and wages. The advantage of this measure is that it has a well-defined theoretical base. To calculate the flexprice gap one tries to determine the level of output that would be attained without some of the imperfections that the real economy suffers from.
Central Bank of Chile’s Twenty-first Annual Conference “Monetary Policy and Financial Stability: Transmission Mechanisms and Policy Implications” Opening remarks by Governor Mario Marcel  Good morning and welcome to the Twenty-first Annual Conference of the Central Bank of Chile. It is a pleasure to host this event that every year gives us an opportunity to reflect and discuss about issues that have direct implications on our work as central bankers from a broader perspective. I am looking forward to active discussions through the rest of the week on this year’s conference theme: monetary policy and financial stability. Ten years have passed since the onset of the Global Financial Crisis and we are still dealing with its economic consequences. But we have learnt a lot, and a decade of hindsight about the causes and long-lasting effects has led us to rethink the way we conduct monetary policy, how to ensure financial stability, and how these two elements are, or should be, interconnected. One of the most important policy lessons from the crisis concerns the relevance of actively seeking financial stability in a context of ever-increasing financial complexity. And central banks worldwide have been increasingly involved in assuring this, since it has become clear that financial stability is a pre-condition for price stability.