Financial variables improve output gap estimates, BoE paper finds
Measure gives policy-makers better early-warning indicators
Policy-makers may be able to spot imbalances developing more easily if they augment their estimates of the output gap with financial variables, according to a working paper published on February 12 by the Bank of England (BoE).
Most economists famously failed to see the 2008 crisis coming, which authors Marko Melolinna and Máté Tóth suggest may be in part because of the focus on macroeconomic variables, which looked relatively normal in the run-up to the crisis, to the neglect of financial
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