# Elimination of the compounded annualized rate series

## Changes to the FRB/US Model

- The previous version of the FRB/US model contained two concepts of most interest rates: the effective annualized yield and the stated interest rate. The former accounts for compounding over the full year and its interest rates were the ones entering in the right-hand side of the model’s dynamic equations. The latter was the concept often reported as it corresponds more closely to the market interest rates. However, the existence of two concepts occasionally fostered confusion and communication issues. For these reasons, and given how in this age of low interest rates, the difference in values between the concepts is relative small, the elimination of one of them appeared to be a natural course of action.

- The following interest rates were eliminated from the model: RFFE, RBTE, RG5E, RG10E, RG30E, RBBBE and RRFFE.
- The basis for the policy rule is now the stated interest rate (RFF) and, consequently, the basis of the natural interest rate (RSTAR) has been adjusted to reflect these revisions.
- The interest rates RCAR and RME remain in the model but they now correspond to the stated concept of interest rate. RMET has been eliminated from the model to reflect changes to the income sector.