Sveriges Riksbank deputy governor Lars E.O. Svensson, my favorite central banker, delivered a speech a few months ago (it’s English title “For a Better Monetary Policy: Focus on Inflation and Unemployment” makes it sound totally banal but it’s not) that had bearing on the question of what’s a policymaker to do in a world where government statisticians can’t accurately measure recessions fast enough to do stabilization policy. He argues that we should forget about the GDP output gap and just pay attention to unemployment:
I believe instead that the unemployment gap is the most appropriate measure of resource utilisation. There are several reasons for this. Unemployment is measured often and is not revised. GDP on the other hand is measured less often and is highly uncertain, and major revisions are made. Unemployment is also directly related to welfare — one of the worst things that can happen to a household is that one of the members of the household loses his or her job. Unemployment is also the indicator of resource utilisation that is best known and easiest for the public to understand. The preparatory works for the Sveriges Riksbank Act state that the Riksbank should support the objectives of general economic policy. One of the main objectives of economy policy in Sweden is to limit unemployment, for example by improving the functioning of the labour market and increasing the incentives to look for work.
Sounds good to me.