Home > Economics, Fiscal Policy, Monetary Policy > Ditch The Output Gap

Ditch The Output Gap

Chris Giles has an excellent piece on ditching the output gap which I won’t quote fully to avoid the wrath of the crack team of copyright enforcement lawyers at the FT:

Ditching the output gap concept would not resolve the big economic debates of the day but it would at least free them from some unnecessary constraints. Monetary policy makers would no longer have to act so surprised that inflation has remained stubbornly high alongside economic weakness. In fiscal policy, the authorities would have to accept that they do not know how much of the deficit is structural and needs action, and how much will go away as the economy recovers.

The rest is just as good.

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