Working Paper

The St. Louis Fed DSGE Model

Abstract: This document contains a technical description of the dynamic stochastic general equilibrium (DSGE) model developed and maintained by the Research Division of the St. Louis Fed as one of its tools for forecasting and policy analysis. The St. Louis Fed model departs from an otherwise standard medium-scale New Keynesian DSGE model along two main dimensions: first, it allows for household heterogeneity, in the form of workers and capitalists, who have different marginal propensities to consume (MPC). Second, it explicitly models a fiscal sector endowed with multiple spending and revenue instruments, such as social transfers and distortionary income taxes. Both of these features make the model well-suited for the analysis of fiscal policy counterfactuals, and monetary-fiscal interactions. We describe how the model is estimated using historical data for the US economy and how the COVID-19 pandemic is accounted for. Some examples of model output are presented and discussed.

Keywords: Dynamic Stochastic General Equilibrium (DSGE) models; policy analysis; New Keynesian models; TANK models; Bayesian estimation; fiscal policy;

JEL Classification: E1; E2; E3; E4; E5;

https://doi.org/10.20955/wp.2024.014

Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Working Papers

Publication Date: 2024-06

Number: 2024-014