Structural Models and Monetary Policy at the Federal Reserve Board: Last Vestiges of the Neoclassical Synthesis or Pragmatic New Consensus?

This paper analyses the structural models used at the Federal Reserve Board (FRB) and assesses the extent to which they reflect the modern New Consensus in Macroeconomics (NCM). It argues that the currently used FRB/U.S. and the FRB/Global models have maintained key theoretical features of the old MPS model and Multi-Country-Model (MCM), including the transmission channels of monetary policy. However, the FRB/U.S. and the FRB/Global encompasses major features of the NCM, namely a prominent role for expectations in the monetary policy process, the natural rate hypothesis and the unemployment bias.