Abstract: This paper derives and presents mean leads and lags as well as
patterns of relative
importance weights implied by the PAC (polynomial-adjustment-cost)
error-correction equations which form the core of the FRB/US model
at the Federal Reserve Board. Relative importance weights measure
the contributions of past and future expected changes in
fundamentals on current decisions. These and the associated mean
lags and leads can be considered summary measures of key dynamic
properties of FRB/US. The spending equations are those for
total consumption, durables consumption, business equipment,
residential housing, and private inventories. The pricing
equations are those for the price
level and wage growth. In addition FRB/US has one PAC equation for
dividends and one for labor hours.
Keywords: Macro modeling, expectations, polynomial adjustment costs, error correction, mean lags and leads
Full paper (139 KB PDF)
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Last update: March 6, 2001
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