Nominal Income Expectations of Consumers
Abstract: Proposals for nominal income targeting typically recommend that the central bank respond to nominal income forecasts as an intermediate target. Such forecasts could potentially come from the Greenbook prepared by the Federal Reserve staff or from a survey of professional forecasters or consumers. Although a large literature examines consumer survey measures of inflation expectations, much less work is done on consumer nominal income expectations. This paper documents key characteristics of income expectations from the Michigan Survey of Consumers. It compares a variety of potential methods for constructing a time series of consumer nominal income expectations from the survey microdata and suggests an income-weighted winsorized mean as the preferred measure. This measure is correlated with nominal GDP forecasts from the Survey of Professional Forecasters and the Greenbook, but with notable differences. I discuss the implications of these differences for nominal income targeting.
JEL codes: D84, E32, E42, E47, E52, E58, E61
Keywords: consumer expectations, monetary policy, nominal income expectations, NGDP targeting