Reading the Stars

By Peter D. Williams, Yasser Abdih, Emanuel Kopp

July 24, 2020

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Format: Chicago

Peter D. Williams, Yasser Abdih, and Emanuel Kopp. Reading the Stars, (USA: International Monetary Fund, 2020) accessed December 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Following the global financial crisis, significant uncertainty has existed around the U.S. economy’s steady state equilibrium. This paper uses a factor model to provide a new approach to estimating “the stars” (i.e. the neutral interest rate, maximum employment, and the level and growth rate of potential output) that are most consistent with a medium-term equilibrium where inflation converges to the FOMC’s two percent target. It is applicable to any country with an inflation targeting central bank. It also explicitly incorporates estimates of the extensive margin of slack in the labor market, which has proven to be an important factor in describing the post-financial crisis landscape.

Subject: Business cycles, Inflation, Inflation targeting, Output gap, Productivity

Keywords: Inflation expectation, Inflation gap, Output gap estimate, Output gap estimation certainty, PCE inflation, WP

Publication Details

Pages:

26
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2020/136
Stock No:

WPIEA2020136
ISBN:

9781513550916
ISSN:

1018-5941

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