Central banks have recently done a poor job of stabilizing the path of nominal expenditures. The adverse demand shock of 2008–2009 led to a severe recession in the United States and Europe. Monetary policy could be greatly improved with a regime of “targeting the forecast,” or setting policy so that the expected growth in nominal GDP is equal to the central bank's target growth rate. This goal could be accomplished by setting up a nominal GDP prediction market and then adjusting the monetary base to stabilize nominal GDP futures prices. The market, not central banks, would set the level of the monetary base and short-term interest rates under this sort of policy regime. Modest adjustments in such a regime could address many previous criticisms of futures targeting.

A recent study by Bils found real wages to be procyclical, contradicting previous findings by Geary and Kennan, who found no consistent relationship, and Neftci, who found countercyclical movements in real wages. These studies differed in both methodology and sample period. In this study, we found that real wages were either procyclical or countercyclical depending on the sample period chosen. Employment changes generated by aggregate supply shocks were associated with procyclical real wage movements, while during years dominated by shifts in aggregate demand, real wages were highly countercyclical.

A recent study by Bils found real wages to be procyclical, contradicting previous findings by Geary and Kennan, who found no consistent relationship, and Neftci, who found countercyclical movements in real wages. These studies differed in both methodology and sample period. In this study, we found that real wages were either procyclical or countercyclical depending on the sample period chosen. Employment changes generated by aggregate supply shocks were associated with procyclical real wage movements, while during years dominated by shifts in aggregate demand, real wages were highly countercyclical.