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Computable General Equilibrium Models and Monetary Policy Advice

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  • Altig, David E
  • Carlstrom, Charles T
  • Lansing, Kevin J

Abstract

This paper argues that variations of extant general-equilibrium monetary models are capable of generating real-time economic forecasts comparable in accuracy to those generated under the standard Federal Reserve Board staff methodology. Specifically, the authors argue that, over the period from 1984 to 1990, forecasts generated by versions of the 'limited participation' models developed by Timothy S. Fuerst (1992) and Lawrence J. Christiano and Martin Eichenbaum (1992) compare favorably with those contained in the Board staff's 'Greenbook' briefing documents. They conclude that further development of these models holds promise for fully integrating the forecasting and policy analysis elements of the Federal Reserve's monetary policy advice process. Copyright 1995 by Ohio State University Press.

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Bibliographic Info

Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 27 (1995)
Issue (Month): 4 (November)
Pages: 1472-93

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Handle: RePEc:mcb:jmoncb:v:27:y:1995:i:4:p:1472-93

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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  1. Cooley, Thomas F & LeRoy, Stephen F & Raymon, Neil, 1984. "Econometric Policy Evaluation: Note," American Economic Review, American Economic Association, vol. 74(3), pages 467-70, June.
  2. Richard Rogerson, 2010. "Indivisible Labor, Lotteries and Equilibrium," Levine's Working Paper Archive 250, David K. Levine.
  3. Martin Eichenbaum & Lawrence J. Christiano, 1992. "Liquidity Effects, Monetary Policy, and the Business Cycle," NBER Working Papers 4129, National Bureau of Economic Research, Inc.
  4. Sargent, Thomas J & Wallace, Neil, 1975. ""Rational" Expectations, the Optimal Monetary Instrument, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 83(2), pages 241-54, April.
  5. Finn E. Kydland & Edward C. Prescott, 1994. "The computational experiment: an econometric tool," Working Paper 9420, Federal Reserve Bank of Cleveland.
  6. Bennett T. McCallum, 1982. "Price Level Determinacy with an Interest Rate Policy Rule and Rational Expectations," NBER Working Papers 0559, National Bureau of Economic Research, Inc.
  7. Gary Hansen, 2010. "Indivisible Labor and the Business Cycle," Levine's Working Paper Archive 233, David K. Levine.
  8. Lawrence J. Christiano & Martin Eichenbaum, 1992. "Liquidity Effects and the Monetary Transmission Mechanism," NBER Working Papers 3974, National Bureau of Economic Research, Inc.
  9. Edward C. Prescott, 1993. "Effects of monetary policies: an unexpected finding," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
  10. Coleman, Wilbur John, II & Gilles, Christian & Labadie, Pamela A, 1996. "A Model of the Federal Funds Market," Economic Theory, Springer, vol. 7(2), pages 337-57, February.
  11. Christopher A. Sims, 1986. "Are forecasting models usable for policy analysis?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 2-16.
  12. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
  13. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November.
  14. Sargent, Thomas J, 1984. "Autoregressions, Expectations, and Advice," American Economic Review, American Economic Association, vol. 74(2), pages 408-15, May.
  15. Lucas, Robert Jr., 1990. "Liquidity and interest rates," Journal of Economic Theory, Elsevier, vol. 50(2), pages 237-264, April.
  16. Lombra, Raymond & Moran, Michael, 1980. "Policy advice and policymaking at the federal reserve," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 13(1), pages 9-68, January.
  17. Lawrence J. Christiano, 1991. "Modeling the liquidity effect of a money shock," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 3-34.
  18. Poole, William, 1975. "The Making of Monetary Policy: Description and Analysis," Economic Inquiry, Western Economic Association International, vol. 13(2), pages 253-65, June.
  19. Fuerst, Timothy S., 1992. "Liquidity, loanable funds, and real activity," Journal of Monetary Economics, Elsevier, vol. 29(1), pages 3-24, February.
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Citations

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Cited by:
  1. Eric M. Leeper & Tao Zha, 2003. "Modest policy interventions," Working Paper 2003-24, Federal Reserve Bank of Atlanta.
  2. Malin Adolfson & Michael K. Andersson & Jesper Lindé & Mattias Villani & Anders Vredin, 2007. "Modern Forecasting Models in Action: Improving Macroeconomic Analyses at Central Banks," International Journal of Central Banking, International Journal of Central Banking, vol. 3(4), pages 111-144, December.
  3. C.K. Folkertsma, 2000. "Liquidity Effects and Welfare Costs of Inflation in an EndogenousGrowth Model," DNB Staff Reports (discontinued) 54, Netherlands Central Bank.
  4. C. K. Folkertsma, 2000. "Liquidity effects and the welfare costs of inflation in an endogenous growth model," WO Research Memoranda (discontinued) 607, Netherlands Central Bank, Research Department.
  5. Andrew Feltenstein & Celine Rochon, 2008. "Can Good Events Lead to Bad Outcomes? Endogenous Banking Crises and Fiscal Policy Responses," Economics Series Working Papers 2008fe03, University of Oxford, Department of Economics.
  6. Peichl, Andreas, 2005. "Die Evaluation von Steuerreformen durch Simulationsmodelle," FiFo Discussion Papers - Finanzwissenschaftliche Diskussionsbeiträge 05-1, University of Cologne, FiFo Institute for Public Economics.
  7. Kevin Moran & Veronika Dolar, 2002. "Estimated DGE Models and Forecasting Accuracy: A Preliminary Investigation with Canadian Data," Working Papers 02-18, Bank of Canada.
  8. Eric M. Leeper & Tao Zha, 2002. "Empirical Analysis of Policy Interventions," NBER Working Papers 9063, National Bureau of Economic Research, Inc.
  9. Roman Sustek, 2005. "Plant-Level Nonconvexities and the Monetary Transmission Mechanism," Working Papers 2005/09, Czech National Bank, Research Department.
  10. Ball, Sheryl & Feltenstein, Andrew, 2001. "Bank failures and fiscal austerity: policy prescriptions for a developing country," Journal of Public Economics, Elsevier, vol. 82(2), pages 247-270, November.

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