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January 2010, No. 10-01
Is the Output Gap a Faulty Gauge for Monetary Policy?
Thomas A. Lubik and Stephen Slivinski
Download essayPolicymakers look to the output gap as a measure of how the economy is performing. However, different methods of computing the output gap can lead to vastly different results, rendering it a potentially poor guide.
Additional Resources
Ireland, Peter. "Changes in the Federal Reserve's Inflation Target: Causes and Consequences." Journal of Money, Credit, and Banking 39, no. 8 (December 2007): 1851-1882. (Working paper version of this article is also available.)
Orphanides, Athanasios. "Monetary-Policy Rules and the Great Inflation." American Economic Review 92, no. 2 (May 2002): 115-120.(Working paper version of this article is also available.)
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