Article Source Over the past few days, I've been trying to identify appropriate measures of the output gap (and trying to relate that to exchange rate changes). As I've done so, I've come to realize that (1) it's a difficult thing to do, and (2) interesting stories come out of different measures. The easiest thing to do is to pull down the CBO's measure (interpolated to quarterly frequency). This yields the following picture (in logs): Figure 1: Log real GDP (Ch.2000$, SAAR) (blue line), and log potential GDP. NBER-defined recession dates shaded gray. Source: BEA, GDP release of 29 May 2008, and CBO, Update of CBO's Economic Forecast (February 2008), data [xls], and NBER. Two observations: (i) recessions do not necessarily coincide with negative output gaps (although they do seem to coincide with the beginning of periods of ...