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The dawning of a new error?

Philosopher and Nobel laureate Bertrand Russell once wrote that: “The fundamental cause of the trouble is that in the modern world the stupid are cocksure while the intelligent are full of doubt.” Wise words indeed. Feelings of doubt should be all too familiar to economists. As a profession, one of the (many) difficulties we face is that a number of important economic concepts are simply unobservable. An economy’s productive potential, central to most macroeconomic models, is one example. Here we discuss the challenges of measuring productive potential in real time, and with it the output gap. We cannot be sure, far from it, but we fear that…

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