4 min read.Updated: 28 Jan 2019, 11:10 PM ISTV. Anantha Nageswaran
The Federal Reserve is still in the business of writing ‘put’ options on the stock market for investors
In the course that I am currently teaching second-year students at the IFMR Graduate School of Business, topics such as potential gross domestic product growth, output gap and overheating came up for discussion recently. Overheating is language that economics has picked up from physics. When a machine is run above its rated capacity or if it runs for too long without a break, it will get overheated. The analogy fits perfectly with economies. The only problem is that in economics, overheating is inferred but not observed directly because the rated capacity—potential output growth—is a rather imprecise estimate.