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Saturday, January 14, 2006

Output Gap No Longer Useful?

Dallas Federal Reserve President Richard Fisher thinks that the output gap 'yardstick' isn't as useful as it once was. I'm inclined to agree. Mental note: I must give this some more thought and write something longer.

The concepts of output gaps for economists or capacity constraints ... are rendered nonexistent," Fisher told a conference on U.S.-Mexico cross-border shopping sponsored by the Dallas Fed in conjunction with the Chicago Fed and the International Council of Shopping Centers.

"The concepts that we have for so long used to determine the course of monetary policy are being challenged" by globalization......