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

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