The GDP gap or the output gap is the difference between actual GDP or actual output and potential GDP. The calculation for the output gap is Y–Y where Y is actual output and Y* is potential output. If this calculation yields a positive number it is called an inflationary gap and indicates the growth of aggregate demand is outpacing the growth of aggregate supply—possibly creating inflation; if the calculation yields a negative number it is called a recessionary gap—possibly signifying deflation.


What is ‘GDP Gap’

The forfeited output of a country’s economy resulting from the failure to create sufficient jobs for all those willing to work.

Explaining ‘GDP Gap’

A GDP gap denotes the amount of production that is irretrievably lost. The potential for higher production levels is wasted because there aren’t enough jobs supplied.

Further Reading

  • The credit-to-GDP gap and countercyclical capital buffers: questions and answers – [PDF]
  • The credit‐to‐GDP gap and complementary indicators for macroprudential policy: Evidence from the UK – [PDF]
  • Countercyclical capital buffers and credit-to-GDP gaps: Simulation for Central, Eastern, and Southeastern Europe – [PDF]
  • Japan's potential output and the GDP gap: a new estimate – [PDF]
  • Credit-to-GDP Trends and Gaps by Lender-and Credit-type – [PDF]
  • On the long-run calibration of the credit-to-GDP gap as a banking crisis predictor – [PDF]
  • Countercyclical capital buffers and real-time credit to GDP gap estimates: a South African perspective – [PDF]
  • Countercyclical capital buffers: credit-to-GDP ratio versus credit growth – [PDF]
  • The Asymmetric Reaction of Monetary Policy to Inflation and Real GDP in China [J] – [PDF]