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Finance and Economics Discussion Series
Finance and Economics Discussion Series logo links to FEDS home page Natural Rate Measures in an Estimated DSGE Model of the U.S. Economy
Rochelle M. Edge, Michael T. Kiley, and Jean-Philippe Laforte

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.

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Last update: March 27, 2007