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The Reliability of the Nominal GDP Expectations Gap

Author

Listed:
  • Andrew B. Martinez

    (Department of Economics, American University and Office of Macroeconomic Analysis, U.S. Department of the Treasury)

  • Alexander D. Schibuola

    (Office of Macroeconomic Analysis, U.S. Department of the Treasury)

  • David Beckworth

    (Mercatus Center, George Mason University)

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 two to three 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.

Suggested Citation

  • Andrew B. Martinez & Alexander D. Schibuola & David Beckworth, 2026. "The Reliability of the Nominal GDP Expectations Gap," International Journal of Central Banking, International Journal of Central Banking, vol. 22(2), pages 525-557, April.
    • Handle: RePEc:ijc:ijcjou:y:2026:q:2:a:8
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    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications

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