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

29 Pages Posted: 25 Apr 2007

See all articles by Rochelle M. Edge

Rochelle M. Edge

Monetary Affairs Division at the Board of Governors of the Federal Reserve System

Michael T. Kiley

Board of Governors of the Federal Reserve System

Jean-Philippe Laforte

Board of Governors of the Federal Reserve System

Date Written: March 2007

Abstract

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.

Keywords: Potential output, Natural rate of interest, Two-sector growth model, Bayesian estimation

JEL Classification: C51, E32, E52, Q41

Suggested Citation

Edge, Rochelle M. and Kiley, Michael T. and Laforte, Jean-Philippe, Natural Rate Measures in an Estimated DSGE Model of the U.S. Economy (March 2007). FEDS Working Paper No. 2007-08. Available at SSRN: https://ssrn.com/abstract=982581 or http://dx.doi.org/10.2139/ssrn.982581

Rochelle M. Edge (Contact Author)

Monetary Affairs Division at the Board of Governors of the Federal Reserve System ( email )

20th and C Streets, NW
Washington, DC 20551
United States
(202) 452 2339 (Phone)
(202) 736-5638 (Fax)

Michael T. Kiley

Board of Governors of the Federal Reserve System ( email )

20th and C Streets, NW
Washington, DC 20551
United States
202-452-2448 (Phone)
202-452-5296 (Fax)

Jean-Philippe Laforte

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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