Liberty Street Economics
Liberty Street Economics

« | Main | »

December 15, 2023

The New York Fed DSGE Model Forecast—December 2023

Marco Del Negro, Pranay Gundam, Donggyu Lee, Ramya Nallamotu, and Brian Pacula

decorative illustration: chart and stock prices background.

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 September 2023. 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 New York Fed model forecasts use data released through 2023:Q3, augmented for 2023:Q4 with the median forecasts for real GDP growth and core PCE inflation from the November release of the Philadelphia Fed Survey of Professional Forecasters, as well as the yields on 10-year Treasury securities and Baa-rated corporate bonds based on 2023:Q3 averages up to November 21. Starting in 2021:Q4, the expected federal funds rate (FFR) between one and six quarters into the future is restricted to equal the corresponding median point forecast from the latest available Survey of Primary Dealers (SPD) in the corresponding quarter. For the current projection, this is the November SPD. 

The economy turned out to be stronger in Q3 than predicted by the model. This forecast error naturally pushes up the output growth forecast for the current year but has only a small impact on projections for activity otherwise. The model expects output growth to be 0.7 percentage points higher in 2023 than forecasted in September (2.6 versus 1.9 percent) but not very different from the September predictions for the rest of the forecast horizon (1.2, 0.7, and 0.9 percent in 2024, 2025, and 2026, versus 1.1, 0.7, and 1.2 percent in September, respectively). The output gap is projected to be somewhat lower in 2023 than was predicted in September, as the model attributes the recent strength of the economy mainly to supply rather than demand factors. The output gap predictions are similar to those made in September for the remainder of the forecast horizon. Inflation projections are lower in 2023 than they were in September (3.4 versus 3.7 percent), mostly because Q3 inflation surprised the model on the downside. The expected path for inflation is unchanged otherwise: 2.2 percent in 2024 and 2.0 percent in 2025 and 2026.  

The short-run real natural rate of interest is expected to remain at the same elevated level as projected in September for 2023 (2.5 percent), declining to 2.2 percent in 2024, 1.8 percent in 2025, and 1.6 percent in 2026. The expected path of the policy rate is essentially unchanged relative to September. The model sees monetary policy as being restrictive through the end of 2024 in the sense that the FFR in real terms is above the short-term natural rate of interest. 

Forecast Comparison

Forecast Period2023202420252026
Date of ForecastDec 23Sep 23Dec 23Sep 23Dec 23Sep 23Dec 23Sep 23
GDP growth
(Q4/Q4)		2.6
 (2.2, 3.0) 		1.9
 (0.2, 3.6) 		1.2
 (-3.8, 6.2) 		1.1
 (-4.0, 6.3) 		0.7
 (-4.3, 5.7) 		0.7
 (-4.4, 5.8) 		0.9
 (-4.5, 6.3) 		1.2
 (-4.2, 6.6) 
Core PCE inflation
(Q4/Q4)		3.4
 (3.3, 3.5) 		3.7
 (3.4, 3.9) 		2.2
 (1.5, 2.9) 		2.2
 (1.5, 3.0) 		2.0
 (1.1, 2.9) 		2.0
 (1.1, 2.9) 		2.0
 (1.0, 3.0) 		2.0
 (1.0, 3.0) 
Real natural rate of interest
(Q4)		2.5
 (1.4, 3.5) 		2.5
 (1.3, 3.7) 		2.2
 (0.8, 3.6) 		2.2
 (0.8, 3.7) 		1.8
 (0.3, 3.3) 		1.9
 (0.3, 3.4) 		1.6
 (0.0, 3.2) 		1.6
 (0.0, 3.3) 
Source: Authors’ calculations.
Notes: This table lists the forecasts of output growth, core PCE inflation, and the real natural rate of interest from the December 2023 and September 2023 forecasts. The numbers outside parentheses are the mean forecasts, and the numbers in parentheses are the 68 percent bands.

Forecasts of Output Growth 

Line chart showing forecasts of output growth generated by the New York Fed's DSGE Model.
Source: Authors’ calculations.
Notes: These two panels depict output growth. In the top panel, the black line indicates actual data and the red line shows the model forecasts. The shaded areas mark the uncertainty associated with our forecasts at 50, 60, 70, 80, and 90 percent probability intervals. In the bottom panel, the blue line shows the current forecast (quarter-to-quarter, annualized), and the gray line shows the September 2023 forecast.

Forecasts of Inflation

Line chart showing forecasts for core PCE inflation generated by the New York Fed's DSGE Model.
Source: Authors’ calculations. 
Notes: These two panels depict core personal consumption expenditures (PCE) inflation. In the top panel, the black line indicates actual data and the red line shows the model forecasts. The shaded areas mark the uncertainty associated with our forecasts at 50, 60, 70, 80, and 90 percent probability intervals. In the bottom panel, the blue line shows the current forecast (quarter-to-quarter, annualized), and the gray line shows the September 2023 forecast. 

Real Natural Rate of Interest

Line chart showing estimates for the real natural rate of interest, as generated by the New York Fed's DSGE Model.
Source: Authors’ calculations. 
Notes: The black line shows the model’s mean estimate of the real natural rate of interest; the red line shows the model forecast of the real natural rate. The shaded area marks the uncertainty associated with the forecasts at 50, 60, 70, 80, and 90 percent probability intervals. 
Photo of Marco Del Negro

Marco Del Negro is an economic research advisor in Macroeconomic and Monetary Studies in the Federal Reserve Bank of New York’s Research and Statistics Group.

Pranay Gundam is a research analyst in the Federal Reserve Bank of New York’s Research and Statistics Group. 

Photo: portrait of Donggyu Lee

Donggyu Lee is a research economist in Macroeconomic and Monetary Studies in the Federal Reserve Bank of New York’s Research and Statistics Group.

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

Brian Pacula is a research analyst in the Federal Reserve Bank of New York’s Research and Statistics Group.

How to cite this post:
Marco Del Negro, Pranay Gundam, Donggyu Lee, Ramya Nallamotu, and Brian Pacula, “The New York Fed DSGE Model Forecast—December 2023,” Federal Reserve Bank of New York Liberty Street Economics, December 15, 2023, https://libertystreeteconomics.newyorkfed.org/2023/12/the-new-york-fed-dsge-model-forecast-december-2023/.

You may also be interested in:

Decorative image: Factory workers on an assembly line with baseball caps on.

The New York Fed DSGE Model Perspective on the Lagged Effect of Monetary Policy

decorative photo of line and bar chart over data

The New York Fed DSGE Model Forecast— September 2023

Decorative: U.S. dollars and surgical masks in a still life.

The Evolution of Short-Run r* after the Pandemic

Disclaimer
The views expressed in this post are those of the author(s) 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 author(s).

RSS RSS Feed

Twitter Follow Liberty Street Economics

About the Blog

Liberty Street Economics features insight and analysis from New York Fed economists working at the intersection of research and policy. Launched in 2011, the blog takes its name from the Bank’s headquarters at 33 Liberty Street in Manhattan’s Financial District.

The editors are Michael Fleming, Andrew Haughwout, Thomas Klitgaard, and Asani Sarkar, all economists in the Bank’s Research Group.

Liberty Street Economics does not publish new posts during the blackout periods surrounding Federal Open Market Committee meetings.

The views expressed are those of the authors, and do not necessarily reflect the position of the New York Fed or the Federal Reserve System.

Economic Research Tracker

Image of NYFED Economic Research Tracker Icon Liberty Street Economics is available on the iPhone® and iPad® and can be customized by economic research topic or economist.

Economic Inequality

image of inequality icons for the Economic Inequality: A Research Series

This ongoing Liberty Street Economics series analyzes disparities in economic and policy outcomes by race, gender, age, region, income, and other factors.

View by Topic

Most Read this Year

  1. Delinquency Is Increasingly in the Cards for Maxed-Out Borrowers
  2. What Was Up with Grocery Prices?
  3. Auto Loan Delinquency Revs Up as Car Prices Stress Budgets
  4. Credit Card Delinquencies Continue to Rise—Who Is Missing Payments?
  5. Taking Stock: Dollar Assets, Gold, and Official Foreign Exchange Reserves
Useful Links
Comment Guidelines

 

We encourage your comments and queries on our posts and will publish them (below the post) subject to the following guidelines:

Please be brief: Comments are limited to 1,500 characters.

Please be aware: Comments submitted shortly before or during the FOMC blackout may not be published until after the blackout.

Please be relevant: Comments are moderated and will not appear until they have been reviewed to ensure that they are substantive and clearly related to the topic of the post.

Please be respectful: We reserve the right not to post any comment, and will not post comments that are abusive, harassing, obscene, or commercial in nature. No notice will be given regarding whether a submission will or will
not be posted.‎

Comments with links: Please do not include any links in your comment, even if you feel the links will contribute to the discussion. Comments with links will not be posted.

Send Us Feedback

Disclosure Policy

The LSE editors ask authors submitting a post to the blog to confirm that they have no conflicts of interest as defined by the American Economic Association in its Disclosure Policy. If an author has sources of financial support or other interests that could be perceived as influencing the research presented in the post, we disclose that fact in a statement prepared by the author and appended to the author information at the end of the post. If the author has no such interests to disclose, no statement is provided. Note, however, that we do indicate in all cases if a data vendor or other party has a right to review a post.

Archives