In London, “mind the gap” announcements remind subway travelers to be careful of the space between the train door and the platform. James Bullard, president of the St. Louis Federal Reserve Bank, reminded economists Sunday to be careful about how they view a different kind of gap — the output gap.

In economic jargon, the output gap is the difference between what the economy is actually producing and what it would produce at full employment. When the gap is large, as during a recession, economists generally aren’t worried about inflation. But, Bullard told the national convention of the National Association for Business Economics, it’s possible to be too complacent on that front. In the 1970s, he noted, inflation took off at a time when most economists thought the output gap was large. The gap is notoriously hard to measure, he says, so we should be cautious in relying on it to predict the future:

I am concerned about a popular narrative in use today. The narrative is that the output gap must be large since the recession is sever, and so any medium-term inflation threat is negligible. … I think this narrative overplays the output-gap story for understanding medium-term risks.

Besides the measurement problem, the output-gap concept has theoretical problems, Bullard added:

Traditional measures of the output gap have no concept of a collapsing bubble. If part or most of the fall in output was a collapsed bubble, then today’s output gap would be smaller than it appears. This is a big issue for us today.

Bullard also repeated concerns he has voiced before about the lack of a policy rule to guide the Fed’s purchases of mortgage-backed securities. And, in response to a question, he said it’s important to revive markets for asset-backed securities, such as those backed by car loans or credit-card debts:

Securitization markets have been badly damanged in this financial crisis. … I think a national priority should be to get securitization markets working again and avoid the excesses that were seen in the early part of this decade. If you can get these securities to be priced in the right way and done in the right way, it should be a good way to get more credit into the economy.