An accurate estimate of potential output is critically important for central banks to assess demand conditions and the output gap. Reliability and timeliness are critical. For example, an output gap measurement mistake led the Federal Reserve to pursue policies that eventually led to the Great Inflation of the 1970s. 3 2F  39.
Potential GDP cannot be directly observed, but has to be estimated using statistical techniques. Such an estimate is vulnerable to errors for three main reasons. First and most obviously, real GDP data is often revised – sometimes substantially – after the initial estimates are published. Second, there is considerable uncertainty in the level of productivity growth at any point in time.