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

The 0.5 percentage point increase in the Greenbook-consistent R* is really due to a collection of factors. In the model, the estimated bond premiums come down a little, and the equity premium came down over the intermeeting period. That just means you need a higher real interest rate to get the same level of policy restraint. Also, they take the model and force in the errors to get the Greenbook simulation. Effectively the model is less enthusiastic about the economy than the Greenbook, and so the model errors tend to raise R*. As to why inflation is coming down, we do have the lagged effects of the drop in energy prices, inflation expectations are contained, and the output gap is closing.

Keyboard shortcuts

j previous speech k next speech