This paper argues that incorporating information about the financial cycle is important to improve measures of potential output and output gaps. Conceptually, identifying potential output with non-inflationary output is too restrictive. Potential output is seen as sustainable; yet experience...

The presence of "economic slack" directly implies that an economy can grow quickly without any necessary offsetting slow growth or retrenchment in the future. Based on this link between economic slack and future economic growth, I argue for a forecastbased estimate of the output gap as a measure...

A popular strategy for estimating output gaps is to anchor them to structural economic relationships. The resulting output gaps, however, are often highly sensitive to numerous auxiliary assumptions inherent in the approach. This complicates their use in policymaking. We illustrate the point...

We estimate output gaps using three methods for Mainland China on annual data spanning 1982 – 2003. The estimates are similar and appear to co-move with inflation. Standards Phillips curves, however, do not fit the data well. This may reflect the omission of some important variable(s) such as...

This paper reviews the role of long-term interest rates in international monetary transmission and related policy challenges in the wake of exceptionally easy US monetary policy. It employs a panel VAR model to examine the impact of a very low US term premium on relatively small open Asian...

Central banks of major advanced economies have maintained a very accommodative monetary policy stance in the last few years. However, concerns have surfaced that the transmission of low policy rates to lending rates has been weaker than in the past. Has the transmission of policy rates to...

Several countries are concurrently experiencing historically low inflation rates and ageing populations. Is there a connection, as recently suggested by some senior central bankers? We undertake a comprehensive test of this hypothesis in a panel of 22 countries over the 1955–2010 period. We...

A model of imperfectly competitive banks is examined under asymmetric information about borrower quality. Greater bank competition and a lower risk-free rate raise the screening costs of lending, which can result in pooling Nash equilibria with credit booms. Such equilibria are characterised by...

We show that global asset reallocations of U.S. fund investors obey a strong factor structure, with two factors accounting for more than 90% of the overall variation. The first factor captures switches between U.S. bonds and equities. The second reflects reallocations from U.S. to international...

This paper studies the choice between building liquidity buffers and raising funding ex post, to deal with liquidity shocks. We uncover the possibility of an inefficient liquidity squeeze equilibrium. Agents typically choose to build smaller liquidity buffers when they expect cheap funding....