Real-Time Model Uncertainty in the United States: the Fed from 1996-2003

Robert Tetlow and Brian Ironside

No 5305, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We study 30 vintages of FRB/US, the principal macro model used by the Federal Reserve Board staff for forecasting and policy analysis. To do this, we exploit archives of the model code, coefficients, baseline databases and stochastic shock sets stored after each FOMC meeting from the model?s inception in July 1996 until November 2003. The period of study was one of important changes in the US economy with a productivity boom, a stock market boom and bust, a recession, the Asia crisis, the Russian debt default, and an abrupt change in fiscal policy. We document the surprisingly large and consequential changes in model properties that occurred during this period and compute optimal Taylor-type rules for each vintage. We compare these optimal rules against plausible alternatives. Model uncertainty is shown to be a substantial problem; the efficacy of purportedly optimal policy rules should not be taken on faith. We also find that previous findings that simple rules are robust to model uncertainty may be an overly sanguine conclusion.

Keywords: Monetary policy; Uncertainty; Real-time analysis (search for similar items in EconPapers)
JEL-codes: C5 C6 E37 E5 (search for similar items in EconPapers)
Date: 2005-10
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-sea
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
https://cepr.org/publications/DP5305 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Working Paper: Real-time model uncertainty in the United States: the Fed from 1996-2003 (2006)
Working Paper: Real-time model uncertainty in the United States: the Fed from 1996-2003 (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:5305

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP5305

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().