Inaugural address by Dr. Duvvuri Subbarao, Governor, Reserve Bank of India at the 7th Statistics Day Conference of RBI, Mumbai on August 30, 2013
...The second conceptual challenge I want to address relates to the measurement of two important macroeconomic variables in the context of monetary policy: potential output and threshold inflation. Understanding the divergence of actual output and inflation from potential output and threshold inflation respectively is critical for the formulation of monetary policy. Reliable estimates of these variables are necessary for formulating the central bank reaction function in the form of Taylor type rules for setting interest rates..........
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