Accessible Material
December 2011 Tealbook B Tables and Charts
Explanatory Notes
A. Measures of the Equilibrium Real Rate
Measure | Description |
---|---|
Single-equation Model | The measure of the equilibrium real rate in the single-equation model is based on an estimated aggregate-demand relationship between the current value of the output gap and its lagged values as well as the lagged values of the real federal funds rate. |
Small Structural Model | The small-scale model of the economy consists of equations for six variables: the output gap, the equity premium, the federal budget surplus, the trend growth rate of output, the real bond yield, and the real federal funds rate. |
EDO Model | Estimates of the equilibrium real rate using EDO--an estimated dynamic-stochastic-general-equilibrium (DSGE) model of the U.S. economy--depend on data for major spending categories, prices and wages, and the federal funds rate as well as the model's structure and estimate of the output gap. |
FRB/US Model | Estimates of the equilibrium real rate using FRB/US--the staff's large-scale econometric model of the U.S. economy--depend on a very broad array of economic factors, some of which take the form of projected values of the model's exogenous variables. |
Tealbook-consistent | Two measures are presented based on the FRB/US and the EDO models. Both models are matched to the extended Tealbook forecast. Model simulations determine the value of the real federal funds rate that closes the output gap conditional on the exogenous variables in the extended baseline forecast. |
TIPS-based Factor Model | Yields on TIPS (Treasury Inflation-Protected Securities) reflect investors' expectations of the future path of real interest rates. The TIPS-based measure of the equilibrium real rate is constructed using the seven-year-ahead instantaneous real forward rate derived from TIPS yields as of the Tealbook publication date. This forward rate is adjusted to remove estimates of the term and liquidity premiums based on a three-factor, arbitrage-free term-structure model applied to TIPS yields, nominal yields, and inflation. |
Proxy used for expected inflation |
Actual real federal funds rate (current value) |
Tealbook-consistent FRB/US-based measure of the equilibrium real funds rate (current value) |
Projected real funds rate (twelve-quarter- ahead average) |
---|---|---|---|
Lagged core inflation | -1.5 | -3.3 | -1.4 |
Lagged headline inflation | -2.7 | -3.4 | -1.4 |
Projected headline inflation | -1.2 | -3.2 | -1.2 |
B. Analysis of Policy Paths and Confidence Intervals
Rule Specifications
For the following rules, $$ i_t$$ denotes the federal funds rate for quarter $$ t$$, while the right-hand-side variables include the staff's projection of trailing four-quarter core PCE inflation ($$ \pi_t$$), the forecast of inflation two and three quarters ahead ($$ \pi_{t+2|t}$$ and $$ \pi_{t+3|t}$$), the output gap estimate for the current period as well as its one quarter ahead forecast ($$ y_t-y_t^*$$ and $$ y_{t+1|t}-y_{t+1|t}^*$$), and the forecast of three-quarter-ahead annual average GDP growth relative to potential ($$ \Delta^4y_{t+3|t}-\Delta^4y_{t+3|t}^*$$). The assumed value of policymakers' long-run inflation objective is denoted $$ \pi^*$$. The outcome-based and forecast-based rules were estimated using real-time data over the sample 1988:1-2006:4; each specification was chosen using the Bayesian information criterion. Each rule incorporates a 75 basis point shift in the intercept, specified as a sequence of 25 basis point increments during the first three quarters of 1998. The first two simple rules were proposed by Taylor (1993, 1999). The prescriptions of the first-difference rule do not depend on assumptions regarding $$ r^*$$ or the level of the output gap; see Orphanides (2003).
Rule | Specification |
---|---|
Outcome-based rule | $$ i_t = 1.20i_{t-1}-0.39i_{t-2}+0.19[1.17+1.73\pi_t+3.66(y_t-y_t^*)-2.72(y_{t-1}-y_{t-1}^*)]$$ |
Forecast-based rule | $$ i_t = 1.18i_{t-1}-0.38i_{t-2}+0.20[0.98+1.72\pi_{t+2|t}+2.29(y_{t+1|t}-y_{t+1|t}^*)-1.37(y_{t-1}-y_{t-1}^*)]$$ |
Taylor (1993) rule | $$ i_t = 2+\pi_t+0.5(\pi_t-\pi^*)+0.5(y_t-y_t^*)$$ |
Taylor (1999) rule | $$ i_t = 2+\pi_t+0.5(\pi_t-\pi^*)+(y_t-y_t^*)$$ |
First-difference rule | $$ i_t = i_{t-1}+0.5(\pi_{t+3|t}-\pi^*)+0.5(\Delta^{4} y_{t+3|t} - \Delta^{4} y_{t+3|t}^*)$$ |
C. Long-Run Projections of the Balance Sheet and Monetary Base
Nov 30, 2011 | 2012 | 2014 | 2016 | 2018 | 2020 | |
---|---|---|---|---|---|---|
Total assets | 2,817 | 3,252 | 3,158 | 2,240 | 1,793 | 2,002 |
Selected assets | ||||||
Liquidity programs for financial firms | 3 | 0 | 0 | 0 | 0 | 0 |
Primary, secondary, and seasonal credit | 0 | 0 | 0 | 0 | 0 | 0 |
Central bank liquidity swaps | 2 | 0 | 0 | 0 | 0 | 0 |
Lending through other credit facilities | 10 | 4 | 0 | 0 | 0 | 0 |
Term Asset-Backed Securities Loan Facility (TALF) | 10 | 4 | 0 | 0 | 0 | 0 |
Support for specific institutions | 38 | 29 | 21 | 11 | 7 | 4 |
Credit extended to AIG | 0 | 0 | 0 | 0 | 0 | 0 |
Net portfolio holdings of Maiden Lane LLC, Maiden Lane II LLC, and Maiden Lane III LLC |
38 | 29 | 21 | 11 | 7 | 4 |
Securities held outright | 2,605 | 3,030 | 2,979 | 2,098 | 1,674 | 1,896 |
U.S. Treasury securities | 1,672 | 1,662 | 1,611 | 1,238 | 1,347 | 1,896 |
Agency debt securities | 106 | 77 | 39 | 16 | 2 | 0 |
Agency mortgage-backed securities | 827 | 1,291 | 1,330 | 843 | 324 | 0 |
Net portfolio holdings of TALF LLC | 1 | 1 | 1 | 0 | 0 | 0 |
Total other assets | 161 | 188 | 157 | 130 | 112 | 103 |
Total liabilities | 2,763 | 3,182 | 3,066 | 2,117 | 1,630 | 1,788 |
Selected liabilities | ||||||
Federal Reserve notes in circulation | 1,020 | 1,090 | 1,217 | 1,365 | 1,515 | 1,673 |
Reverse repurchase agreements | 93 | 70 | 70 | 70 | 70 | 70 |
Deposits with Federal Reserve Banks | 1,578 | 2,006 | 1,762 | 666 | 30 | 30 |
Reserve balances held by depository institutions | 1,492 | 1,988 | 1,757 | 661 | 25 | 25 |
U.S. Treasury, General Account | 86 | 17 | 5 | 5 | 5 | 5 |
U.S. Treasury, Supplementary Financing Account | 0 | 0 | 0 | 0 | 0 | 0 |
Other balances | 0 | 0 | 0 | 0 | 0 | 0 |
Interest of Federal Reserve Notes due to U.S. Treasury | 1 | 0 | 0 | 0 | 0 | 0 |
Total capital | 54 | 70 | 93 | 123 | 162 | 215 |
Source: Federal Reserve H.4.1 statistical releases and staff calculations.
Note: Components may not sum to totals due to rounding.
Nov 30, 2011 | 2012 | 2014 | 2016 | 2018 | 2020 | |
---|---|---|---|---|---|---|
Total assets | 2,817 | 2,828 | 2,680 | 1,934 | 1,793 | 2,002 |
Selected assets | ||||||
Liquidity programs for financial firms | 3 | 0 | 0 | 0 | 0 | 0 |
Primary, secondary, and seasonal credit | 0 | 0 | 0 | 0 | 0 | 0 |
Central bank liquidity swaps | 2 | 0 | 0 | 0 | 0 | 0 |
Lending through other credit facilities | 10 | 4 | 0 | 0 | 0 | 0 |
Term Asset-Backed Securities Loan Facility (TALF) | 10 | 4 | 0 | 0 | 0 | 0 |
Support for specific institutions | 38 | 29 | 21 | 11 | 7 | 4 |
Credit extended to AIG | 0 | 0 | 0 | 0 | 0 | 0 |
Net portfolio holdings of Maiden Lane LLC, Maiden Lane II LLC, and Maiden Lane III LLC |
38 | 29 | 21 | 11 | 7 | 4 |
Securities held outright | 2,605 | 2,610 | 2,504 | 1,795 | 1,675 | 1,897 |
U.S. Treasury securities | 1,672 | 1,662 | 1,611 | 1,238 | 1,465 | 1,897 |
Agency debt securities | 106 | 77 | 39 | 16 | 2 | 0 |
Agency mortgage-backed securities | 827 | 871 | 855 | 540 | 208 | 0 |
Net portfolio holdings of TALF LLC | 1 | 1 | 1 | 0 | 0 | 0 |
Total other assets | 161 | 185 | 154 | 128 | 110 | 101 |
Total liabilities | 2,763 | 2,758 | 2,587 | 1,811 | 1,630 | 1,788 |
Selected liabilities | ||||||
Federal Reserve notes in circulation | 1,020 | 1,090 | 1,217 | 1,365 | 1,515 | 1,673 |
Reverse repurchase agreements | 93 | 70 | 70 | 70 | 70 | 70 |
Deposits with Federal Reserve Banks | 1,578 | 1,582 | 1,284 | 361 | 30 | 30 |
Reserve balances held by depository institutions | 1,492 | 1,564 | 1,279 | 356 | 25 | 25 |
U.S. Treasury, General Account | 86 | 17 | 5 | 5 | 5 | 5 |
U.S. Treasury, Supplementary Financing Account | 0 | 0 | 0 | 0 | 0 | 0 |
Other balances | 0 | 0 | 0 | 0 | 0 | 0 |
Interest of Federal Reserve Notes due to U.S. Treasury | 1 | 0 | 0 | 0 | 0 | 0 |
Total capital | 54 | 70 | 93 | 123 | 162 | 215 |
Source: Federal Reserve H.4.1 statistical releases and staff calculations.
Note: Components may not sum to totals due to rounding.
Nov 30, 2011 | 2012 | 2014 | 2016 | 2018 | 2020 | |
---|---|---|---|---|---|---|
Total assets | 2,817 | 2,662 | 2,038 | 1,603 | 1,793 | 2,002 |
Selected assets | ||||||
Liquidity programs for financial firms | 3 | 0 | 0 | 0 | 0 | 0 |
Primary, secondary, and seasonal credit | 0 | 0 | 0 | 0 | 0 | 0 |
Central bank liquidity swaps | 2 | 0 | 0 | 0 | 0 | 0 |
Lending through other credit facilities | 10 | 4 | 0 | 0 | 0 | 0 |
Term Asset-Backed Securities Loan Facility (TALF) | 10 | 4 | 0 | 0 | 0 | 0 |
Support for specific institutions | 38 | 29 | 16 | 11 | 7 | 4 |
Credit extended to AIG | 0 | 0 | 0 | 0 | 0 | 0 |
Net portfolio holdings of Maiden Lane LLC, Maiden Lane II LLC, and Maiden Lane III LLC |
38 | 29 | 16 | 11 | 7 | 4 |
Securities held outright | 2,605 | 2,469 | 1,890 | 1,482 | 1,689 | 1,908 |
U.S. Treasury securities | 1,672 | 1,598 | 1,338 | 1,246 | 1,689 | 1,908 |
Agency debt securities | 106 | 77 | 39 | 16 | 0 | 0 |
Agency mortgage-backed securities | 827 | 794 | 513 | 220 | 0 | 0 |
Net portfolio holdings of TALF LLC | 1 | 1 | 1 | 0 | 0 | 0 |
Total other assets | 161 | 159 | 131 | 110 | 97 | 90 |
Total liabilities | 2,763 | 2,592 | 1,945 | 1,481 | 1,630 | 1,788 |
Selected liabilities | ||||||
Federal Reserve notes in circulation | 1,020 | 1,090 | 1,217 | 1,365 | 1,515 | 1,673 |
Reverse repurchase agreements | 93 | 70 | 70 | 70 | 70 | 70 |
Deposits with Federal Reserve Banks | 1,578 | 1,416 | 642 | 30 | 30 | 30 |
Reserve balances held by depository institutions | 1,492 | 1,398 | 637 | 25 | 25 | 25 |
U.S. Treasury, General Account | 86 | 17 | 5 | 5 | 5 | 5 |
U.S. Treasury, Supplementary Financing Account | 0 | 0 | 0 | 0 | 0 | 0 |
Other balances | 0 | 0 | 0 | 0 | 0 | 0 |
Interest of Federal Reserve Notes due to U.S. Treasury | 1 | 0 | 0 | 0 | 0 | 0 |
Total capital | 54 | 70 | 93 | 123 | 162 | 215 |
Source: Federal Reserve H.4.1 statistical releases and staff calculations.
Note: Components may not sum to totals due to rounding.