The Expectations Gap: An Alternative Measure of Economic Slack
Alexander D. Schibuola and Andrew B. Martinez propose an alternative measure of economic slack using the expectations gap, which is the percentage difference between actual and potential GDP. The output gap is commonly used to forecast inflation and inform economic policy, but its reliability has been reduced due to concerns about financial stability and the difficulty of estimating potential GDP. The authors suggest that the expectations gap may be a more reliable measure of economic slack because it is based on expectations of future output, which are less likely to be revised. The study has been peer-reviewed and is part of the Mercatus Working Paper series.
