A new technique was developed to estimate both the potential output level and the Phillips curve. The potential output level is the point where inflation neither speeds up nor slows down. By analyzing data from G7 countries, it was found that the output gap was mostly negative in the 1980s and 1990s due to disinflation. The output gap also reflects business conditions and can be influenced by corporate sentiments. In Japan, the output gap became too unpredictable for accurate assessment after a drop in growth rate in the mid-1990s. Additionally, Japan's inflation response to the output gap was weaker compared to other countries.