New measure of output gap revives understanding of inflation dynamics.
The article introduces a new way to measure the gap between what an economy is producing and what it could produce, as well as how this affects inflation. Previous studies suggested that traditional measures were not accurate. By using a different method to estimate this gap, the researchers found that it still plays a significant role in predicting inflation. This suggests that the relationship between economic output and inflation, known as the New Keynesian Phillips curve, is still relevant in explaining how prices change over time.