In this framework, the relevant output gap to be addressed is the difference between the efficient level and that level generated by the distortion introduced by the sticky prices and market imperfections. The behavior of the efficient level of output is unlikely to be a smooth or a slowly evolving series like the CBO concept.
In fact, it could be quite volatile and may bear little or no resemblance to the traditional concept of potential used by the CBO and others. Efficient output would be altered by changes in technology that affect productivity or changes in agents’ preferences.