Well, one answer is that the model we’re using to provide these quantitative estimates makes use of the labor share as one of the explanatory variables that enters into the dynamics of inflation—price inflation and wage inflation. But the view of this model is that the labor share ...

May I add one more point to the answer to your question? There’s no sense that there is any payback from the benefits of productivity that has to be met at some point. So while we’re saying that the productivity story has played out, we have reached this ...

One comment I might have on that is that the weight we give to monetary policy in the experience of the last five years is associated with our notion that policy changes the sensitivity of inflation to the gap between unemployment and the natural rate. For monetary policy to receive ...

One could say that the interest rate equation in it is not stable, reflecting the shift in policy, and we do take account of that. And that’s really the only test we would apply. One could actually look closer at it.

Well, one could ask whether that model is stable, and certainly—

The federal funds rate, the gap between the unemployment rate and the natural rate, and the rate of consumer price inflation.

In the process of estimating the wage-price structure in the FRB/US model, we are actually generating our own proxies for expected inflation. And those proxies are the forecasts that would be generated by a small VAR model of the economy, assuming that embedded in that small VAR model is ...

Well, we’re actually generating proxies ourselves from a small VAR model, one of the elements of which is an equation for the federal funds rate in the form of a Taylor rule type of equation that I described earlier. So we’re not using survey data.

Yes, though the answer to that does depend upon how inflation expectations are formed.

Well, we have more than one lag on inflation, but if we summed up the individual coefficients on all the lags, beta would be about .65, I think.

To be clear, we’re imposing coefficients only as they relate to the conduct of monetary policy. But we do estimate the other coefficients—for example, the beta and gamma that are explicitly shown in the exhibit.

We are imposing it on the model, but we are taking our coefficient estimates from studies that other people have done based on analyzing the data. We are not doing our own independent estimates.

Well, the specific way that we characterize monetary policy is in the form of a “Taylor rule” equation—a dynamic form of the Taylor rule that has a lagged interest rate in it. We’re using different coefficients in this Taylor rule to characterize the two different views.

No, really there’s a pair of equations—one for price inflation and one for wage inflation—that are estimated together. We’re assuming in the process of estimating these two equations that expectations are formed in a manner consistent with a view of how monetary policy operates to move ...