Commitment strategies whereby monetary accommodation
is not removed until either inflation or economic activity overshoots its longrun objective are very effective in both the DSGE and FRB/US models.
Instead, the lower bound on interest rates and constraints on the adoption of unconventional measures prevented sufficient monetary accommodation
since the financial crisis in most advanced economies.
"There's a lot of monetary accommodation
, less fiscal drag; most countries are enjoying reduction in oil prices.
"The Reserve Bank will look to a continuation and even acceleration of policy efforts to unclog the supply response so as to make available key inputs such as power and land." He said the progress on repurposing of public spending from poorly targeted subsidies towards public investment and on reducing the pipeline of stalled investment would also be helpful in containing supply constraints and creating room for monetary accommodation
The WEO study notes that economies with clearly identified infrastructure needs and efficient public investment processes, and where there is economic slack and monetary accommodation
, stand to benefit from higher public infrastructure investment.
First, it should admit that it still does not know how to exit the extreme monetary accommodation
required to avoid a financial and economic collapse after a crisis like the one that hit the US financial market in September 2008.
Federal Reserve will deviate from its course of removing monetary accommodation
from a strengthening economy.
"A high degree of monetary accommodation
remains warranted,'' Chair Janet Yellen said Wednesday in testimony prepared for delivery to the Joint Economic Committee of Congress.
The report warned that policy-makers must "avoid a premature withdrawal of monetary accommodation
" - supporting Mr Carney's caution about any immediate increase in interest rates.
"We are resolute in our determination to maintain a high degree of monetary accommodation
and act swiftly if required."
He said that the institution remains "firmly determined" to maintain a high degree of monetary accommodation
and to take "further decisive action" if required.
However, improvements in the major economies have required exceptional monetary accommodation
and there remains uncertainty about the timing of withdrawal of this stimulus and its effects, especially on emerging market economies.