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The lasting impact of the Covid crisis on economic potential
As the global economy recovers from the immediate economic impact of the Covid crisis, attention is increasingly turning to the long-run impact of the shock on the productive potential of the economy. Such assessments are crucial in various looming policy choices. The UK government’s fiscal plans, for example, rest on the Office for Budget Responsibility’s assessment that the UK’s economic outlook will remain 3% below its pre-crisis trend into the long run (OBR 2021). And as the US Federal Reserve and other central banks begin to remove policy support, estimates of potential output and the output gap will be ... (full story)