Here's an interesting post from Paul Krugman talking about the implications of smoothing a data series, in this case GDP. Although it's about a technique called the Hodrick-Prescott (H-P) filter, this is just a fancy means of smoothing, as covered in chapter 11 of the book, on seasonal adjustment.
Essentially, Krugman's argument is that economists have smoothed the GDP data and then called this 'potential output'. Since actual GDP is not far off the smoothed value (in 2012, as I write), some interpret this to mean there is not much of a recession. Hence little need for active fiscal or monetary policy to address the problem.
However, the smoothed series inevitably follows the actual series (even though it changes more slowly) and hence is bound not to be too far away. The implicit assumption is that when actual output falls, so does potential output, which is generally not warranted. The H-P filter only filters out short-term fluctuations and does not deal well with large changes, such as a recession.
Who would have thought that such a technical issue could have such a powerful effect upon the debate around economic policy?
