Estimates of Potential Output and the Neutral Rate for the U.S. Economy (original) (raw)

Get the Lowdown: Building a Structural Open-Economy Model of the U.S. Natural Rate of Interest

Globalization Institute Working Paper No. 403app, 2021

In this paper, I describe the building blocks of the workhorse model used in Martínez-García (2020b). This is a two-country dynamic stochastic general equilibrium (DSGE) model with complete asset markets and nominal rigidities subject to country-specific productivity, cost-push, and monetary policy shocks. I also discuss the significance of the occasionally-binding zero-lower bound constraint on the policy rate when it comes to estimating the model. I propose a method with which to obtain structural estimates that are consistent-in-expectations with the zero-lower bound. The method involves augmenting the set of (log-linearized) equilibrium conditions that always bind with auxiliary measurement equations that constraint the path of endogenous expectations to align with the observed survey-based expectations. For their part, survey-based expectations are formed by private agents (private forecasters) that are aware of and have internalized the effects of the zero-lower bound on the expected future path of the economy.

The Importance of Stock Market Returns in Estimated Monetary Policy Rules: a Structural Approach

2006

This paper estimates a standard version of the New Keynesian Monetary (NKM) model augmented with financial variables in order to analyze the relative importance of stock market returns and term spread in the estimated U.S. monetary policy rule. The estimation procedure implemented is a classical structural method based on the indirect inference principle. The empirical results show that the Fed seems to respond to the macroeconomic outlook and to the stock market return but does not seem to respond to the term spread. Moreover, policy inertia and persistent policy shocks are also significant features of the estimated policy rule.