Finally, estimates of the uncertainty around real-time output gaps underscore the
importance of exercising caution and transparency in actual policy formulation. Indeed,
by and large, these findings should discourage governments from relying on optimistic
macroeconomic projections, and EU entities from accepting them. In this respect, my
favourite is Canada’s rule-of-thumb approach, whereby the government builds fiscal
forecasts on macroeconomic projections generated by private sector (mostly think-tanks)
consensus, subject to a small conservative safety margin.
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