Survey_LWW_2002

Abstract

While each of the four macroeconometric models has been fitted to U.S. data, the dynamic properties of these models exhibit marked differences that reflect ongoing theoretical and empirical controversies. In particular, the Fuhrer-Moore (FM) model exhibits the highest degree of inertia with respect to both aggregate demand and inflation (cf. Fuhrer and Moore (1995)). In the Federal Reserve Board (FRB) model, prices and spending are subject to higher-order adjustment costs, this model also features a relatively detailed representation of the supply side of the economy (cf. Brayton, Mauskopf, Reifschneider, Tinsley and Williams (1997b), Reifschneider, Tetlow and Williams (1999)). In the multicountry model of Taylor (1993) – hereafter referred to as TMCM – prices are determined by staggered wage contracts, while consumption and investment expenditures are explicitly forward-looking and exhibit relatively little intrinsic inertia. Finally, the Monetary Studies Research (MSR) model developed by Orphanides and Wieland (1998) exhibits output dynamics similar to that of TMCM and inflation dynamics similar to that of the FM model. To compare the properties of these models, we utilize an estimated federal funds rate equation as a benchmark policy rule. In particular, using U.S. quarterly data for the period 1980:1-1998:4.