The FRB/US Model: A Tool for Macroeconomic Policy Analysis

Brayton, Flint; Laubach, Thomas; Reifschneider, David

doi:10.17016/2380-7172.0012

Cited by 65 publications

(47 citation statements)

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“…Simulations using the Federal Reserve Board's model (FRB/US) suggest that a fiscal stimulus of 1 percent of GDP could be expected to raise U.S. growth by between 0.7 and 1.5 percent after two years (World Bank 2017;Brayton, Laubach and Reifschneider 2014). However, the effectiveness of fiscal stimulus in lifting U.S. growth over the short and medium run depends critically on the circumstances of its implementation.…”

Section: Fiscal Policy Spilloversmentioning

confidence: 99%

“…Fiscal multipliers-the additional output generated by an additional U.S. dollar of government spending or tax cut-depend on the presence of economic slack, the reaction of monetary policy, and the nature of the fiscal measures (Laforte and Roberts 2014;Brayton, Laubach, and Reifschneider 2014;Whalen and Reichling 2015). In particular, fiscal stimulus measures could be expected to have different effects if they take the form of tax cuts or measures to bolster government spending and infrastructure investment.…”

Section: Fiscal Policy Spilloversmentioning

confidence: 99%

“…17 A vector autoregression model including GDP or industrial production growth in the United States, other advanced economies and EMDEs, as well as 10-year U.S. bond 15 See Erceg, Guerrieri, and Gust (2006); Laforte and Roberts (2014) ;Brayton, Laubach, and Reifschneider (2014).…”

Section: Spillovers From the World To The United Statesmentioning

confidence: 99%

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The Global Role of the U.S. Economy: Linkages, Policies and Spillovers

Kose¹,

Lakatos²,

Ohnsorge³

et al. 2017

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in

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Section: Fiscal Policy Spilloversmentioning

confidence: 99%

Section: Fiscal Policy Spilloversmentioning

confidence: 99%

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The Global Role of the U.S. Economy: Linkages, Policies and Spillovers

Kose¹,

Lakatos²,

Ohnsorge³

et al. 2017

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“…5 For information on the FRB/US model, see Brayton, Laubach and Reifschneider (2014) and the references therein.…”

Section: Methodsmentioning

confidence: 99%

Fiscal Policy and Aggregate Demand in the U.S. Before, During and Following the Great Recession

Cashin

Lenney

Lutz

et al. 2017

FEDS

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We examine the effect of federal and subnational fiscal policy on aggregate demand in the U.S. by introducing the fiscal effect (FE) measure. FE can be decomposed into three components. Discretionary FE quantifies the effect of discretionary or legislated policy changes on aggregate demand. Cyclical FE captures the effect of the automatic stabilizers-changes in government taxes and spending arising from the business cycle. Residual FE measures the effect of all changes in government revenues and outlays which cannot be categorized as either discretionary or cyclical; for example, it captures the effect of the secular increase in entitlement program spending due to the aging of the population. We use FE to examine the contribution of fiscal policy to growth in real GDP over the course of the Great Recession and current expansion. We compare this contribution to the contributions to growth in aggregate demand made by fiscal policy over past business cycles. In doing so, we highlight that the relatively strong support of government policy to GDP growth during the Great Recession was followed by a historically weak contribution over the course of the current expansion. NOTE:The analysis and conclusions set forth are those of the authors and do not indicate concurrence by other members of the research staff or the Board of Governors. References to this publications should be cleared with the author(s) given its preliminary status.

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“…As emphasized in Brayton, Laubach, and Reifschneider (2014) and Laforte and Roberts (2014), the FRB/US model is extensively used in monetary-policy analysis at the Federal Reserve and captures features of the economy that reflect consensus views across macroeconomists, but is not strictly "micro-founded" in the manner used in many academic analyses. The DSGE model we use, from Lindé, Smets, and Wouters (2016), is much smaller than FRB/US, but also shares a number of features with FRB/US, including similar contours of the effects of monetary policy on economic activity and inflation.…”

Section: Figure 2: Probability Density Functions For Alternative Steamentioning

confidence: 99%

Monetary Policy in a Low Interest Rate World

Kiley¹,

Roberts²

2017

FEDS

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Nominal interest rates may remain substantially below the averages of the last half-century, as central bank's inflation objectives lie below the average level of inflation and estimates of the real interest rate likely to prevail over the long run fall notably short of the average real interest rate experienced over this period. Persistently low nominal interest rates may lead to more frequent and costly episodes at the effective lower bound (ELB) on nominal interest rates. We revisit the frequency and potential costs of such episodes in a low-interest-rate world in a dynamic-stochastic-general-equilibrium (DSGE) model and large-scale econometric model, the FRB/US model. Several conclusions emerge. First, monetary policy strategies based on traditional policy rules lead to poor economic performance when the equilibrium interest rate is low, with economic activity and inflation more volatile and systematically falling short of desirable levels. Moreover, the frequency and length of ELB episodes under such policy approaches is significantly higher than in previous studies. Second, a risk-adjustment to a simple rule in which monetary policymakers are more accommodative, on average, than prescribed by the rule ensures that inflation achieves its 2 percent objective and requires that policymakers aim at inflation near 3 percent when the ELB is not binding. Third, commitment strategies in which monetary accommodation is not removed until either inflation or economic activity overshoot their long-run objectives are very effective in both the DSGE and FRB/US model. Finally, our results suggest that the adverse effects associated with the ELB may be substantial at inflation targets near 2 percent if r* is low and monetary policy follows a traditional policy approach. Whether such adverse effects could justify a higher inflation target depends on whether monetary policy strategies substantially different from traditional approaches are feasible and an assessment of the effects of the inflation target on economic welfare. ACKNOWLEDGMENTS

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The FRB/US Model: A Tool for Macroeconomic Policy Analysis

Abstract: The FRB/US model of the U.S. economy is one of several that Federal Reserve Board staff consults for forecasting and the analysis of macroeconomic issues, including both monetary and fiscal policy.

Cited by 65 publications

References 0 publications

The Global Role of the U.S. Economy: Linkages, Policies and Spillovers

The Global Role of the U.S. Economy: Linkages, Policies and Spillovers

Fiscal Policy and Aggregate Demand in the U.S. Before, During and Following the Great Recession

Monetary Policy in a Low Interest Rate World

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