The Reliability of the Nominal GDP Expectations Gap

Andrew Martinez (), Alexander Schibuola () and David Beckworth ()

No 2025-004, Working Papers from The George Washington University, Department of Economics, H. O. Stekler Research Program on Forecasting

Abstract: Arguments for nominal income targeting are often dismissed because it is an unreliable measure. To assess these concerns, we compare the real-time performance of several nominal and real measures of economic slack. We find that the nominal GDP expectations gap - the difference between nominal GDP and average projections thereof from surveys of professional forecasters - performs well as a measure of economic slack: its historical revisions are 2-3 times smaller than other measures, it significantly improves real-time forecasts of inflation since the pandemic, and it makes monetary policy rules up to 40 percent less volatile. Overall, concerns about nominal income targets are misplaced.

Keywords: Business cycles; Forecast accuracy; Phillips curve; Taylor rule (search for similar items in EconPapers)
JEL-codes: C53 E32 E37 E47 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2025-06
New Economics Papers: this item is included in nep-mon
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