3 Meanwhile, the Tankan composite indicator – the proxy for the output gap based on the extent of labor and capital stock utilized – is built as the weighted average of the diffusion indices (DIs) for the employment conditions and production capacity from the Bank’s Tankan.
To channel Mulder and Scully, the truth is out there, but its whereabouts are unknown. We are always making decisions under uncertainty. Uncertainty is unavoidable. Sometimes the uncertainty isn’t that important and we can ignore it. But a lot of the time, it is important and we can’t ignore it. So what do we do? We estimate.