Optimal Policy Projections, Issue 11392
National Bureau of Economic Research, 2005 - Monetary policy - 25 pages
The method is illustrated by revisiting the economy of early 1997 as seen in the Greenbook forecasts of Feb. 1997 and Nov. 1999. In both cases, the authors use the vintage of the FRB/US model that was in place at that time. These two particular forecasts were chosen, in part, because they were at the beginning and the peak, respectively, of the late 1990s boom period. As such, they differ markedly in their implied judgments of the state of the world in 1997 and the authors' OPPs illustrate this difference. For a conventional loss function, the authors' OPPs provide significantly better performance than Taylor-rule simulations.
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5.6 percent adjustment costs alternative analysis assumptions backcast baseline projection basis points Bluebook central bank conditional core inflation deviation economy equations estimates example extra-model February 1997 Greenbook federal funds rate Federal Reserve Board Federal Reserve System finite-horizon approximation FOMC forecast period funds rate path Greenbook extension Greenbook forecast historical horizon includes incorporate inflation rate instrument intertemporal loss function judgment Lars E. O. Svensson linear Macroeconomics Market matrix method of OPPs monetary policy n^-vector NAIRU NBER Working Papers near-linear November 1999 Greenbook Optimal Policy Projections papers in hard Partial Subscription percentage point policy prescription policymaker polynomial adjustment potential output price stability productivity boom productivity growth projection model rate of inflation rational expectations real funds rate reference projection Reserve Board's FRB/US restriction scenarios simulation staff stochastic process strategy Svensson 17 target levels target rate target variables Taylor rule Tetlow unemployment rate VAR-based views vintage