Insights

  • The fall and rise of the output gap

    5 May 2021

    This is the first of three Fathom In Depth articles that explore the inflation outlook in a post-pandemic world. We start by reviewing the ways in which economists have tended to think about the inflationary process. We discuss the concept of the output gap, or economic slack — effectively the level of output in an economy relative to normal levels, or to potential — and consider how useful a metric this might be in predicting inflation, both in theory and...