the rule prescriptions. the price index used by john in the carnegie rochester paper was the gdp price deflator. other researchers have used the inflation measure based on the consumer price index ( cpi ). over the past fifteen years, the federal reserve has emphasized the inflation rate as measured by changes in the price index for personal consumption expenditures ( pce ). many researchers have also explored the use of core price indexes, which exclude the volatile food and energy components, as better predictors of future inflation or as more robust indicators of the sticky prices that some theories say should be the targets of policy. to be sure, over long periods, most of these measures behave very similarly. but policy is made in the here and now, and the various indexes can diverge significantly for long stretches, potentially providing different signals for the appropriate course of monetary policy. second, the implementation of the taylor rule and other related rules requires determining the level of the equilibrium real interest rate and the level of potential output ; neither of them are observable variables, and both must be inferred from other information. john used 2 percent as a rough guess as to the real federal funds rate that would be consistent with the economy producing at its potential. but the equilibrium level of the real federal funds rate probably varies over time because it depends on factors such as the growth rate of potential output, fiscal policy, and the willingness of savers to supply credit to households and businesses. inaccurate estimates of this rate will mislead policymakers about the policy stance required to achieve full employment. in a similar vein, real - time estimates of potential output can be derived in a number of ways and – as shown by orphanides ( 2003 ) and others – they are subject to large and persistent errors. if policymakers inadvertently rely on flawed estimates, they will encounter persistent problems in achieving their inflation objective. the third limitation of using simple rules for monetary policymaking stems from the fact that, by their nature, simple rules involve only a small number of variables. however, the state of a complex economy like that of the united states cannot be fully captured by any small set of summary statistics. moreover, policy is best made looking forward, that is, on the basis of projections of how inflation and economic activity may evolve. lagged or current values of the small set of variables used in a given simple rule may not provide a sufficient guide to future economic developments, especially in periods of rapid or unusual change. for these reasons,

##fi industry to develop a richer understanding of the finance activities and unique risks and strengths of these investment opportunities. as these two seemingly disparate worlds of the capital markets and the community development industry address these challenges together, a powerful source of sustainable private capital can be tapped to fund an equally powerful spectrum of community investments. i am confident that the expertise and dedication found in the community development industry can move the industry in the right direction to address these obstacles as well as to expand the flow of capital to low - and moderateincome communities and individuals.