MANCHESTER, England (Reuters) – Economists will find it hard to identify the relationship between inflation and the amount of slack in the economy when central banks are pursuing optimal monetary policy, Bank of England policymaker Silvana Tenreyro said on Tuesday.
“That you don’t see a relation between inflation and slack is precisely what you’d expect when policymakers are optimizing,” Tenreyro told the European Economics Association’s annual conference in Manchester.
“If monetary policy successfully offsets all other shocks, the data only show the response to the cost shocks, which trace out the wrong slope,” she added in her presentation.
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