CANOO

These days everyone has an output gap, but a cross-country look still raises questions. How can Italy (IT) have the same output gap as New Zealand (NZ), when Italian real GDP is down 22% since end-2007, while New Zealand is up 19%?

Definition

The output gap is an economic measure of the difference between the actual output of an economy and its potential output. 

Nonsense by Design

Believieving "output gaps" can be accurately measured or one should even try is the real problem.  Potential output vs real output? Please!

By definition, output gaps are "nonsense"

RECOMMENDED ARTICLES

Like the Phillips Curve, output gaps are another economic idea that belongs in the ashcan.

Regarding the Phillips Curve

  1. Fed Study Shows Phillips Curve Is Useless: Admitting the Obvious
  2. Yet Another Fed Study Concludes Phillips Curve is Nonsense

Despite being proven useless, economists, even the Fed (despite their own studies) still cling to to the idea.

Brooks' Observation

Brooks' observation is enough to prove the silliness of output gap measurement, but that will not stop any economists from trying to measure them.

Nonsensical output gap measurements will cease the moment economists stop attempting to measure them, not before.

Mish