Lost in Translation: From Fed-Speak to Model-Speak

Chief Economist Vincent Reinhart takes the latest WEO database and explains the four key features of policy that Fed officials keep repeating. 

They say that they will:

  1. Continue policy rate renormalization;
  2. Settle at a low policy interest rate;
  3. Follow a gradual path; and,
  4. Achieve their inflation goal of 2 percent.

To translate Fed-speak into model-speak, we need to recognize that the central mechanism of a macro model is its explanation of aggregate demand, or the overall level of spending in an economy.

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