April 2016, David Rosnick

This issue brief examines the IMF’s methodology for estimating potential GDP, and its pitfalls and problems. A number of economists have noted recent problems with overestimates of actual GDP in recent years in Greece, and the IMF’s own research has found that the multipliers associated with fiscal tightening had been underestimated.  But the policy and political implications of potential GDP estimates, which are not only forecasts but also continuously revised for past estimates, may be even more important.

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