The New York Fed DSGE Model Forecast—October 2018

Michael Cai, Marco Del Negro, Ethan Matlin, Reca Sarfati, and Argia Sbordone

This post presents an update of the economic forecasts generated by the Federal Reserve Bank of New York’s dynamic stochastic general equilibrium (DSGE) model. We describe very briefly our forecast and its change since July 2018. As usual, we wish to remind our readers that the DSGE model forecast is not an official New York Fed forecast, but only an input to the Research staff’s overall forecasting process. For more information about the model and variables discussed here, see our DSGE model Q & A.

The October model forecast for 2018-21 is summarized in the table below, alongside the July forecast, and in the following charts. The model uses quarterly macroeconomic data released through the second quarter of 2018 and available financial data and staff forecasts through October 1, 2018.

How do the latest forecasts compare with the July forecasts?

• The current Q4/Q4 GDP growth forecast for 2018 is significantly higher than the one of July (3.1 percent versus 2.3 percent), but it is similar for the remainder of the forecast horizon. The model attributes the stronger growth for 2018, relative to what was anticipated in July, to higher productivity growth and accommodative monetary policy, in spite of the federal funds rate increase in September. The inflation projections are largely unchanged.
• The estimate for the real natural rate of interest in 2018 and its projected path in the medium run are also higher than they were in July. This result is mainly due to higher than expected trend productivity growth. Longer-run projections for the real natural rate of interest are unchanged.

Disclaimer

The views expressed in this post are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.

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Michael Cai is a senior research analyst in the Federal Reserve Bank of New York’s Research and Statistics Group.

Marco Del Negro is a vice president in the Bank’s Research and Statistics Group.

Ethan Matlin is a senior research analyst in the Bank’s Research and Statistics Group.

Reca Sarfati is a senior research analyst in the Bank’s Research and Statistics Group.

Argia Sbordone is a vice president in the Bank’s Research and Statistics Group.

How to cite this blog post:

Michael Cai, Marco Del Negro, Ethan Matlin, Reca Sarfati, and Argia Sbordone, “The New York Fed DSGE Model Forecast—October 2018,” Federal Reserve Bank of New York Liberty Street Economics (blog), October 24, 2018, https://libertystreeteconomics.newyorkfed.org/2018/10/the-new-york-fed-dsge-model-forecastoctober-2018.html.