Economists have had considerable experience this century in observing how market economies converted to centrally planned ones but until recently have had virtually no exposure in the opposite direction. Ironically, in aiding in the process of implementing the latter, we are being forced to more fully understand the roots of our own system.
xii The output gap is normally expressed as a percentage of potential output. xiii This conceptual framework for the relationship between the output gap and the deviation of inflation from target is based on the expectations-augmented Phillips Curve, originally developed 50 years ago by Milton Friedman. See M. Friedman, “The Role of Monetary Policy,” American Economic Review 58, no. 1 (March 1968): 1–17.