Estimates of output gap getting worse

Ben Southwood
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ECONOMIC estimates used to determine monetary policy have become less accurate, a working paper released by the Bank of England revealed yesterday.

Absolute output gap revisions have gone up, even as revisions due to delayed inclusion of previously available data have declined.

The output gap is the difference between actual GDP and potential GDP at constant inflation, and it plays closely into policymakers’ decisions. Some analysts have argued that the loose monetary policy following the 2008 financial crisis was based on an estimate of the output gap.