Output gap

The GDP gap or the output gap is the difference between actual GDP or actual output and potential GDP, in an attempt to identify the current economic position over the business cycle. The measure of output gap is largely used in macroeconomic policy. The GDP gap is a highly criticized notion, in particular due to the fact that the potential GDP is not an observable variable, it is instead often derived from past GDP data, which could lead to systemic downward biases.

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