Cover IMF Working Papers
Reading the Stars
Author: Peter D. Williams, Mr. Yasser Abdih, and Emanuel Kopp
Series:
IMF Working Papers
Volume/Issue:
Volume 2020: Issue 136
Language:
English
Publication Date:
24 Jul 2020
DOI:
https://doi.org/10.5089/9781513550916.001
ISBN:
9781513550916
ISSN:
1018-5941
Pages:
26
Keywords:
WP; output gap estimate; PCE inflation; inflation gap; inflation expectation; output gap estimation certainty
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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Following the global financial crisis, significant uncertainty has existed around the U.S. economy’s steady state equilibrium. This paper uses a factor model to provide a new approach to estimating “the stars” (i.e. the neutral interest rate, maximum employment, and the level and growth rate of potential output) that are most consistent with a medium-term equilibrium where inflation converges to the FOMC’s two percent target. It is applicable to any country with an inflation targeting central bank. It also explicitly incorporates estimates of the extensive margin of slack in the labor market, which has proven to be an important factor in describing the post-financial crisis landscape.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund