The role of expectations in the FRB/US macroeconomic model

Flint Brayton, Eileen Mauskopf, David L. Reifschneider, Peter Tinsley and John Williams

Federal Reserve Bulletin, 1997, vol. 83, issue Apr, 227-245

Abstract: In the past year, the staff of the Board of Governors of the Federal Reserve System began using a new macroeconomic model of the U.S. economy referred to as the FRB/US model. This system of mathematical equations, describing interactions among economic measures such as inflation, interest rates, and gross domestic product, is one of the tools used in economic forecasting and the analysis of macroeconomic policy issues at the Board. The FRB/US model replaces the MPS model, which, with periodic revisions, had been used at the Federal Reserve Board since the early 1970s. A key feature of the new model is that expectations of future economic conditions are explicit in many of its equations. Because of this clear delineation of expectations, the FRB/US model can be used to study issues that would be difficult or impossible to study with the MPS model. For example, the new model can show how the economy's response to specific events, such as a reduction in defense spending, may vary considerably with the speed at which the public recognizes that the event has occurred or will occur.

Keywords: Econometric models; Federal Reserve System; Forecasting (search for similar items in EconPapers)
JEL-codes: D84 E17 (search for similar items in EconPapers)
Date: 1997
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Citations: View citations in EconPapers (94)

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DOI: 10.17016/bulletin.1997.83-4

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