The “Output Gap” is a barren concept

And it has been widely “debated” recently. See here, here and here (and links therein).

Market Monetarists prefer to tackle the question of “gap” from the nominal or spending perspective. After all, that´s what stabilization policy can influence or control. So I present the chart below with three “ingredients”:

  1. Actual nominal spending (NGDP)
  2. A linear trend from 1987 to 2005
  3. The CBO “Potential NGDP”

There are a few “descriptions” in the chart, so you can make up your own story. But the “bottom line” is that there is a “spending gap”. It may be “high” or “low”, or somewhere in between so monetary policy is “shy”.

One thought on “The “Output Gap” is a barren concept

  1. Pingback: The "output gap" is a barren concept « Economics Info

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.