Transcripts of the monetary policymaking body of the Federal Reserve from 2002–2008.

Thank you. I have a question that is related to this issue, but it comes out of the Bluebook. I think I understand how this model is working, but then I get a surprise, and I realize I really don’t understand how it works. I noticed in the Bluebook that there was a jump of 50 basis points in the Greenbook-consistent estimate of the real funds rate. At the same time in the model and the simulations, you keep the fed funds rate constant, which would be slightly below what that Greenbook real rate might suggest. The unemployment rate remains somewhat below your NAIRU estimate, and yet you still have inflation modestly declining. I’m trying to figure out how that works. Is there something that I’m not understanding, or can you clarify the mechanism by which those things fit together?

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