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Panel Discussion of Increased Understanding of Supply-side Economics

  • Economics


Panel Discussion of Increased Understanding of Supply-side Economics 1 0 5CONFereNCe vOlume | 2010 iNCreased uNderstaNdiNg OF supply-side eCONOmiCs Panel Discussion 1. Alan Bollard First, I would like very much to thank the Reserve Bank of Australia for the invitation to contribute to today’s Symposium. Congratulations on the 50th Anniversary and thank you for a long period of great cooperation between our institutions, which has certainly helped us. I should also say that it is quite insightful to put a supply-side topic onto an agenda like this, its inclusion is not automatic, but it underpins so much of what we care about. What I would like to do is not critique the paper, which I enjoyed very much, but rather to say ‘so what?’ from a central banking perspective. Inevitably, the answer I will provide is coloured by my own experiences. In my previous job as Treasury Secretary, and before that as head of our competition authority, I was deeply involved in supply-side issues, and in the 1980s we undertook a sort of deregulatory ‘big bang’, so I have been involved with a key part of these policy debates for a long time. 1.1 Why should central banks care about supply-side issues? Basically because of the importance of potential output and output gaps in the way we think about, model and measure inflation and its relationship to the real economy. It is important, not just in a measurement sense, but more conceptually as well. Of course we attempt to measure potential output despite the great difficulties of quantifying, even ex post, just what it is. So while I enjoyed the paper’s definition of supply-side issues, measurement is something additional to think about and right at the moment is exceptionally hard. 1.2 How have supply-side developments impacted potential output? From a monetary policy point of view, potential output tends to be thought of as fixed in the short term. However, the global financial crisis is currently making us question that sor

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