Productivity Slowdown and Monetary Policy

In the aftermath of the financial crisis of 2007–2008 policymakers became concerned about a slowdown of potential growth. In his Kiel Policy Brief Mewael F. Tesfaselassie discusses monetary policy response to potential growth slowdown. It puts the discussion in historical perspectives, namely, potential growth slowdown during the Great Inflation of the 1970s and potential growth pick up during the New Economy of the 1990s. He argues that anchoring inflation expectations is more important when potential growth slows down, with the implication that monetary policy needs to react more strongly to incoming information about inflationary pressures.