Computable General-Equilibrium Models and Monetary Policy Advice

This paper argues that variations of extant general-equilibrium monetary models are capable of generating real-time economic forecasts comparable in accuracy to those generated under the, standard Federal Reserve Board staff methodology. Specifically, we argue that over the 1984-1990 period, forecasts generated by versions of the "limited participation" models developed by Fuerst (1992) and Christiano and Eichenbaum (1992a, 1992b) compare favorably with those contained in the Board staff’s "Greenbook" briefing documents. We conclude that further development of these models holds promise for fully integrating the forecasting and policy analysis elements of the Federal Reserve’s monetary policy advice process.