IDEAS home Printed from
   My bibliography  Save this paper

Income Persistence and Macro-Policy Feedbacks in the United States


  • Muellbauer, John


This paper analyses and forecasts annual time series of aggregate real income per head in the United States. The approach integrates elements from recent univariate time-series analyses with multi-equation macromodels in which policy feedback rules have been endogenized. The main conclusions are as follows. First, aggregate real per capita income is subject to significant trend reversion. This conclusion comes through more clearly by examining the data at an annual rather than the more usual quarterly frequency, and by incorporating multivariate economic content in the income process. Second, there is significant evidence for the Lucas (1976) or Haavelmo (1944) critique: in the United States there appears to have been a shift in the structural macro-policy reaction function causing a corresponding shift in the reduced-form income forecasting equation. This is associated with increased concern in the late 1980s over the size of US budget deficits. Third, with the above proviso, useful real income forecasts can be made as far as three years ahead. Finally, the paper provides empirical evidence for the effectiveness of monetary policy on real output or income. The change in the short-term interest rate is highly significant in forecasting income growth up to three years after the change.

Suggested Citation

  • Muellbauer, John, 1997. "Income Persistence and Macro-Policy Feedbacks in the United States," CEPR Discussion Papers 1557, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:1557

    Download full text from publisher

    File URL:
    Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at

    As the access to this document is restricted, you may want to search for a different version of it.


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Hasan Bakhshi, 2000. "The sensitivity of aggregate consumption to human wealth," Bank of England working papers 108, Bank of England.

    More about this item


    Income Persistance; Lucas Critique; Macro Forecasts; Macro-Policy Feedback Rules; Monetary Policy Transmission; Structural Breaks;

    JEL classification:

    • 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
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:1557. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.