Potential output growth estimates for 2022, 2023 and 2024 in the European Commission’s Autumn 2022 European Economic Forecast also remain higher than the estimates in the Autumn 2019 and 2020 European Economic Forecasts. To put the size of the revisions to potential output in context, the European Commission estimates that potential output was 5% lower 5 years after the onset of the global financial crisis compared to the level it would have had if it had increased each year from 2008 to 2012 at the pre-crisis potential growth rate (that loss increased to more than 9% after 10 years). The European Commission’s Autumn 2022 European Economic Forecast estimates GDP to be 0.2% higher in 2024 than the level it would have had if it had increased each year from 2020 to 2024 at the 2019 potential growth rate, but 0.6 percentage points lower than the level implied by the Autumn 2019 European Economic Forecast. The potential output level in 2024 is therefore not estimated to be significantly different from the level that could be expected before the onset of the pandemic, with the sign of the change depending on the counterfactual used. This may reflect factors that have impacted potential growth in different directions: the pandemic and the recent shocks may have had a negative effect, while Next Generation EU investments and other policy measures in response to the pandemic may have had a positive effect, with the net effect being small. 15.
[7] Whose Problem Is It? In setting monetary policies, should advanced economies take into account the spillover eﬀects on EMEs through capital flows? It is neither feasible nor desirable for advanced economies’ monetary policies to be constrained by considerations of the cross-border spillovers they generate. Advanced economy central banks have their own domestic macro stability goals they need to meet and cannot be expected to sub-optimise their policy outcomes. Moreover, accommodative monetary policies in the advanced economies have generated positive spillovers to EMEs, through strengthening export demand and enabling conducive financing conditions. At the same time, it must be recognised that monetary policy latitude in EMEs is to some extent compromised by large capital flows. Empirical studies have found that EMEs’ monetary policy responds to movements in US interest rates and exchange rates, besides their own domestic macroeconomic conditions. [8]  EMEs should therefore have the flexibility to use the policy tools at their disposal to protect their domestic economies from risks arising from large capital flows. Some Questions for an Integrated Policy Framework What are some of the questions that an integrated policy framework should seek to address? The existence of diﬀerent policy objectives and multiple sources of disequilibria necessitates the use of a range of policy instruments. These can be grouped under three broad buckets: foreign exchange interventions (FXIs), macroprudential measures (MPMs) and capital flow management measures (CFMs).