International Finance Discussion Papers - Output Gaps

What is the output gap? There are many definitions in the economics literature, all of which have a long history. I discuss three alternatives: the deviation of output from its long-run stochastic trend (i.e., the \Beveridge-Nelson cycle\); the deviation of output from the level consistent with current technologies and normal utilization of capital and labor input (i.e., the \production-function approach\); and the deviation of output from \flexible-price\ output (i.e., its \natural rate\)...