Economic Mismeasurement and the Bias in Policy Choice

Paper number: 95/11

Paper date: September 1995

Year: 1995

Paper Category: Discussion Paper


Gareth D. Myles
University of Exeter


The level of economic activity is never measured perfectly because of the problems of definition, inaccuracies in data collection and the existence of the hidden economy. Such mismeasurement implies that government policies based on official statistics can be optimal only by chance. The analysis formalises this observation in a two-sector economy and attempts to quantify the direction and extent of the bias introduced into policy by the failure to account for the true size of the economy.

JEL Classification numbers: E61, H21, H26.
Keywords: Mismeasurement, policy choice, bias.

Postal Address: Department of Economics, University of Exeter, Exeter EX4 4RJ, UK