Natural rate measures in an estimated DSGE model of the U.S. economy

Abstract

This paper presents an estimated 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 a clear interpretation of the data. We emphasize the role of model-based analyses as vehicles for storytelling by providing examples -based around the evolution of natural rates of output 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. Published by Elsevier B.V.

Structural Estimation of the Output Gap: A Bayesian Dsge Approach

“…According to Edge, Kiley, and Laforte (2008), who exploit a larger model for the U.S. economy and estimate the output gap that is conceptually similar to ours, their output gap has been negative at all times since the middle of the 1990s. On the other hand, our estimate of the output gap exhibits cyclical movements during the period and is successful in illustrating the business cycles.…”

“…The output gap we estimate in this paper is conceptually similar to the ones by Edge, Kiley, and Laforte (2008) for the United States and Smets and Wouters (2003) for the Euro area, who estimate larger‐scale DSGE models with Bayesian techniques and extract the model‐based output gaps 1 . They define potential output as the flexible price and wage level of output attainable in the absence of the associated shocks.…”

Extending a SVAR Model of the Australian Economy*

“…The existence of two co‐integrating vectors among the five variables means that there are three independent permanent components. As observed earlier, in theoretical models there is usually a single permanent component, the level of technology, although Edge et al . (2008) include two components.…”

Inflation Targeting

“…See also Dokko, Doyle, Kiley, Kim et al (2009). 61 See Del Negro and Otrok (2007), Jarocinski and Smets (2008), Edge, Kiley, and Laforte (2008), and Iacoviello and Neri (2008). 62 Assenmacher-Wesche and Gerlach (2009) study the responses of residential property and equity prices, inflation and economic activity to monetary policy shocks in 17 countries in the period 1986-2007, using single-country VARs and panel VARs in which they distinguish between groups of countries depending on their financial systems.…”