Via FTAlpahville:
The output gap is a concept we got familiar with during the global financial crisis. But it’s time to revisit it, in some detail.
One reason the measure often gets overlooked in mainstream headlines is because it doesn’t sound all that consequential. Yet it is. Arguably more so than ever. Encumbering its popularity, however, is the fact it’s not always universally considered to be a thing. Saltwater-type economists (a.k.a the stimulus inclined) are far more partial to backing its theoretical existence than fresh water austerity types because it helps them justify more government spending. Added to that, it’s also notoriously difficult to measure in real time.
