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The deflationary output gap...how big is it and how long will it take to close?
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The nominal GDP output gap reached 10% of potential GDP in Q2 of 2020, the largest on record.
The gap quickly narrowed upon the partial reopening and large fiscal stimulus.
The nGDP output gap based on CBO projections stands at about 3.5%.
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The gap quickly narrowed upon the partial reopening and large fiscal stimulus.
The nGDP output gap based on CBO projections stands at about 3.5%.
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Here is an alternative (different) measure of the nGDP gap by @DavidBeckworth.
The nGDP output gap was nearly 12% in Q2 but has narrowed to 4.7%.
https://www.mercatus.org/publications/monetary-policy/neutral-level-ngdp-and-ngdp-gap-q3-2020
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The nGDP output gap was nearly 12% in Q2 but has narrowed to 4.7%.
https://www.mercatus.org/publications/monetary-policy/neutral-level-ngdp-and-ngdp-gap-q3-2020
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Fiscal stimulus may help to close the nGDP output gap, which is arguably more important for things like debt etc., but it won't help as much to close the real GDP output gap.
The real GDP output gap fell to a record 10% in Q2 and has recovered to a similar 3.5%.
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The real GDP output gap fell to a record 10% in Q2 and has recovered to a similar 3.5%.
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The snap-back was a reflexive bounce after a sharp recession (Zarnowitz rule) that would have occurred with or without fiscal stimulus.
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The game gets harder from here as the economy won't have any additional snap-back effect and it is now time to climb out of an output gap that is as deep or deeper than every recession since 1950, except for one.
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The last three recessions took 3-9 years to close the output gap
Initial conditions are much different than 1990, 2002, and 2009.
The fiscal & monetary policy regime is also much different
Whichever side you come out on, the easy gains have been made, the hard part begins
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Initial conditions are much different than 1990, 2002, and 2009.
The fiscal & monetary policy regime is also much different
Whichever side you come out on, the easy gains have been made, the hard part begins
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