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Economic Brief

January 2010, No. 10-01

Is the Output Gap a Faulty Gauge for Monetary Policy?

Thomas A. Lubik and Stephen Slivinski

Policymakers 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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