1.0Liberty Street Economicshttps://libertystreeteconomics.newyorkfed.orgpeterstevenshttps://libertystreeteconomics.newyorkfed.org/author/peterstevens-2-2-2-2-2-2-2-2-2-2-2-2-2-2-2-2-2-2-3/The New York Fed DSGE Model Perspective on the Lagged Effect of Monetary Policy - Liberty Street Economicsrich600338<blockquote class="wp-embedded-content" data-secret="JUEhQV07tI"><a href="https://libertystreeteconomics.newyorkfed.org/2023/11/the-new-york-fed-dsge-model-perspective-on-the-lagged-effect-of-monetary-policy/">The New York Fed DSGE Model Perspective on the Lagged Effect of Monetary Policy</a></blockquote><iframe sandbox="allow-scripts" security="restricted" src="https://libertystreeteconomics.newyorkfed.org/2023/11/the-new-york-fed-dsge-model-perspective-on-the-lagged-effect-of-monetary-policy/embed/#?secret=JUEhQV07tI" width="600" height="338" title="“The New York Fed DSGE Model Perspective on the Lagged Effect of Monetary Policy” — Liberty Street Economics" data-secret="JUEhQV07tI" frameborder="0" marginwidth="0" marginheight="0" scrolling="no" class="wp-embedded-content"></iframe><script>
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https://libertystreeteconomics.newyorkfed.org/wp-content/uploads/sites/2/2023/11/LSE_2023_DSGE-lagged_delnegro_460.jpg920576This post uses the New York Fed DSGE model to simulate how interest rates, output, and inflation would have performed had the Fed followed an average inflation targeting (AIT)-type reaction function since the second quarter of 2021, when inflation began to rise—instead of keeping the federal funds rate at the zero lower bound until March 2022, and then raising it aggressively thereafter. The authors show that actual policy was more accommodative in 2021 than implied by the AIT reaction function and then more contractionary in 2022 and beyond.