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Working Paper
Monetary Policy Strategies to Foster Price Stability and a Strong Labor Market
Kiley, Michael T. (2024-05-28)
I assess monetary policy strategies to foster price stability and labor market strength. The assessment incorporates a range of challenges, including uncertainty regarding the equilibrium real interest rate, mismeasurement of economic potential, and balancing the costs and benefits associated with employment shortfalls and labor market strength. I find that the ELB remains a significant constraint, hindering achievement of the inflation objective and worsening employment shortfalls. Symmetric policy reaction functions mitigate the most adverse effects of employment shortfalls by contributing ...
Finance and Economics Discussion Series , Paper 2024-033

Discussion Paper
Financial and Macroeconomic Indicators of Recession Risk
Kiley, Michael T. (2022-06-21)
Recessions impose sizable hardship, with large increases in the unemployment rate and related dislocations. In addition, recessions can lead to large shifts in financial markets. As a result, economists and financial market professionals have considered prediction models to assess the probability of a recession.
FEDS Notes , Paper 2022-06-21-1

Working Paper
Stock prices and fundamentals in a production economy
Kiley, Michael T. (2000)
This paper compares the predictions for the market value of firms from the Gordon growth model with those from a dynamic general equilibrium model of production. The predictions for movements in the market value of firms in response to a decline in the required return or an increase in the growth rate of the economy are quantitatively and qualitatively different across the models. While previous research has illustrated how a drop in the required return or an increase in the growth rate of the economy can explain the runup in equity values in the 1990s in the Gordon growth model, the ...
Finance and Economics Discussion Series , Paper 2000-05

Working Paper
How has the monetary transmission mechanism evolved over time?
Kiley, Michael T.; Mishkin, Frederic S.; Boivin, Jean (2010)
We discuss the evolution in macroeconomic thought on the monetary policy transmission mechanism and present related empirical evidence. The core channels of policy transmission - the neoclassical links between short-term policy interest rates, other asset prices such as long-term interest rates, equity prices, and the exchange rate, and the consequent effects on household and business demand - have remained steady from early policy-oriented models (like the Penn-MIT-SSRC MPS model) to modern dynamic-stochastic-general-equilibrium (DSGE) models. In contrast, non-neoclassical channels, such as ...
Finance and Economics Discussion Series , Paper 2010-26

Working Paper
Recession Signals and Business Cycle Dynamics: Tying the Pieces Together
Kiley, Michael T. (2023-01-20)
Examining a parsimonious, yet comprehensive, set of recession signals yields three lessons. First, signals from financial markets, leading indicators of activity, and gauges of the macroeconomic environment are each useful at different horizons, with leading indicators and financial signals informative at short horizons and the state of the business cycle at medium horizons. Second, approaches emphasizing the yield curve overstate the recession signal from the term spread if other factors are not considered; given correlations among indicators, these differences are often small, but were ...
Finance and Economics Discussion Series , Paper 2023-008

Working Paper
Output gaps
Kiley, Michael T. (2010)
What is the output gap? There are many definitions in the economics literature, all of which have a long history. I discuss three alternatives: the deviation of output from its long-run stochastic trend (i.e., the "Beveridge-Nelson cycle"); the deviation of output from the level consistent with current technologies and normal utilization of capital and labor input (i.e., the "production-function approach"); and the deviation of output from "flexible-price" output (i.e., its "natural rate"). Estimates of each concept are presented from a dynamic-stochastic-general-equilibrium (DSGE) ...
Finance and Economics Discussion Series , Paper 2010-27

Working Paper
Documentation of the Research and Statistics Division’s estimated DSGE model of the U.S. economy: 2006 version
Laforte, Jean-Philippe; Kiley, Michael T.; Edge, Rochelle M. (2007)
This paper provides documentation for the large-scale estimated DSGE model of the U.S. economy used in Edge, Kiley, and Laforte (2007). The model represents part of an ongoing research project (the Federal Reserve Board's Estimated, Dynamic, Optimization-based--FRB/EDO--model project) in the Macroeconomic and Quantitative Studies section of the Federal Reserve Board aimed at developing a DSGE model that can be used to address practical policy questions and the model documented here is the version that was current at the end of 2006. The paper discusses the model's specification, estimated ...
Finance and Economics Discussion Series , Paper 2007-53

Working Paper
Monetary policy under neoclassical and New-Keynesian Phillips Curves, with an application to price level and inflation targeting
Kiley, Michael T. (1998)
This paper compares discretionary monetary policy under two Phillips curves. Previous work uses a Phillips curve consistent with "Neoclassical" models of price adjustment. Sticky price models imply a "New-Keynesian" Phillips curve based on staggered price setting that delivers familiar results on an inflationary bias and inflation contracts. However, the comparison of price level and inflation targeting reveals an output/price stability tradeoff under the New-Keynesian model that does not arise under the Neoclassical specification, illustrating the usefulness of considering the ...
Finance and Economics Discussion Series , Paper 1998-27

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