In fact, the third scenario that I considered involved trying to emphasize that point—namely that, at least by some measures that people have come up with, there is a big difference in where bond rates are relative to standard estimates of fundamentals. It’s actually a much bigger problem ...

Right. The Taylor rule would just be one example, of course, of a policy that takes into account the information you have up to that point. It’s not optimal in some sense. It’s just a simple equation. It does represent this wait-and-see approach. I was using the optimal ...

That would be the standard policy.

I think that the Greenbook forecast, as I understand it—and maybe Dave should talk about this—is predicated on a particular assumption about the future path of housing prices and takes into account the kind of models that Josh was discussing. The staff looks at all the empirical evidence ...

So, one of the shortcomings, even of a model with several hundred equations, is that it doesn’t have the distribution effects.

In terms of the FRB/US model, the only way that house prices and housing wealth enter is through the aggregate.

All I’m doing is the latter—reducing the overall housing wealth by 20 percent relative to the base.

That’s correct. That’s why I was trying to compare it with the Taylor rule—which doesn’t have that aspect of responding to developments as they unfold—to see how well that would do.

In the optimal policy simulations, from the beginning of the simulations, which is the third quarter of this year, you know the entire future path of house prices and any other shocks that I add. So you are acting in anticipation of those future price changes.

I’ll be referring to the exhibits beginning on page 26. In my presentation today, I’ll lay out a few scenarios that illustrate the potential macroeconomic fallout resulting from a significant decline in house prices, and I will examine policy responses that minimize it.

I’ll start by describing ...