Natural Rate Measures in an Estimated DSGE Model of the U.S. Economy

This paper presents a monetary DSGE model of the U.S. economy. The model captures the most important production, expenditure, and nominal-contracting decisions underlying economic data while remaining sufficiently small to allow it to provide a clear interpretation of the data. We emphasize the role of model-based analyses as vehicles for storytelling by providing several examples - based around the evolution of natural rates of production and interest - of how our model can provide narratives to explain recent macroeconomic fluctuations. The stories obtained from our model are both similar to and quite different from conventional accounts.

[1]  Commentary : separating the business cycle from other economic fluctuations , 2005 .

[2]  B. Bernanke,et al.  Inside the Black Box: The Credit Channel of Monetary Policy Transmission , 1995 .

[3]  Rochelle M. Edge,et al.  The Responses of Wages and Prices to Technology Shocks , 2003 .

[4]  M. Woodford,et al.  Chapter 16 The cyclical behavior of prices and costs , 1999 .

[5]  T. Lapp.  The Greenspan era: lessons for the future , 2005 .

[6]  Michael T. Kiley.  A Quantitative Comparison of Sticky-Price and Sticky-Information Models of Price Setting , 2006 .

[7]  A. Felix,et al.  FEDERAL RESERVE BANK OF KANSAS CITY , 1999 .

[8]  Lawrence J. Christiano,et al.  Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy , 2005 .

[9]  Michele Boldrin,et al.  Habit Persistence, Asset Returns, and the Business Cycle , 2001 .

[10]  Karl Whelan.  A Two-Sector Approach to Modeling U.S. NIPA Data , 2001 .

[11]  Karl Whelan,et al.  Does Labor's Share Drive Inflation? , 2005 .

[12]  Michael T. Kiley.  Habit Persistence, Non-Separability between Consumption and Leisure, or Rule-of-Thumb Consumers: Which Accounts for the Predictability of Consumption Growth? , 2007 .

[13]  J. Laforte,et al.  Pricing Models: A Bayesian DSGE Approach for the U.S. Economy , 2007 .

[14]  Luca Guerrieri,et al.  Sigma: A New Open Economy Model for Policy Analysis , 2005 .

[15]  M. Bils.  The Cyclical Behavior of Marginal Cost and Price , 1987 .

[16]  M. Woodford,et al.  INTEREST AND PRICES: FOUNDATIONS OF A THEORY OF MONETARY POLICY , 2005, Macroeconomic Dynamics.

[17]  Karen E. Dynan.  Habit Formation in Consumer Preferences: Evidence from Panel Data , 2000 .

[18]  Jeffrey C. Fuhrer.  Habit Formation in Consumption and Its Implications for Monetary Policy Models , 2000 .

[19]  Benjamin L Hunt,et al.  Gem: A New International Macroeconomic Model , 2004 .

[20]  Frank Smets,et al.  Shocks and Frictions in Us Business Cycles: A Bayesian DSGE Approach , 2007, SSRN Electronic Journal.

[21]  Edward Nelson,et al.  THE REAL-INTEREST-RATE GAP AS AN INFLATION INDICATOR , 2001, Macroeconomic Dynamics.

[22]  Per Krusell,et al.  The Role of Investment-Specific Technological Change in the Business Cycle , 2000 .

[23]  David L. Reifschneider,et al.  Econometric models and the monetary policy process , 1997 .

[24]  John C. Williams,et al.  Measuring the Natural Rate of Interest , 2001, Review of Economics and Statistics.

[25]  Separating the Business Cycle from Other Economic Fluctuations , 2005 .

[26]  Per Krusell,et al.  Long-Run Implications of Investment-Specific Technological Change , 1995 .

[27]  H. Uhlig.  Macroeconomics and Asset Markets: some Mutual Implications. ⁄ , 2004 .

[28]  Frank Smets,et al.  Comparing Shocks and Frictions in Us and Euro Area Business Cycles: A Bayesian DSGE Approach , 2004, SSRN Electronic Journal.

[29]  Michael T. Kiley,et al.  Documentation of the Research and Statistics Divisions Estimated DSGE Model of the U.S. Economy: 2006 Version , 2007 .

[30]  Jonas D. M. Fisher.  The Dynamic Effects of Neutral and Investment‐Specific Technology Shocks , 2006, Journal of Political Economy.

[31]  Riccardo DiCecio.  Comovement: It's Not a Puzzle , 2005 .

[32]  Lawrence J. Christiano,et al.  Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy , 2001, Journal of Political Economy.

[33]  Finn E. Kydland,et al.  Time to Build and Aggregate Fluctuations , 1982 .