Home Economics The New York Fed DSGE Mannequin Forecast—December 2023

The New York Fed DSGE Mannequin Forecast—December 2023

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The New York Fed DSGE Mannequin Forecast—December 2023

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This put up presents an replace of the financial forecasts generated by the Federal Reserve Financial institution of New York’s dynamic stochastic common equilibrium (DSGE) mannequin. We describe very briefly our forecast and its change since September 2023. As common, we want to remind our readers that the DSGE mannequin forecast will not be an official New York Fed forecast, however solely an enter to the Analysis workers’s total forecasting course of. For extra details about the mannequin and variables mentioned right here, see our DSGE mannequin Q & A.

The New York Fed mannequin forecasts use knowledge launched via 2023:Q3, augmented for 2023:This fall with the median forecasts for actual GDP progress and core PCE inflation from the November launch of the Philadelphia Fed Survey of Skilled Forecasters, in addition to the yields on 10-year Treasury securities and Baa-rated company bonds based mostly on 2023:Q3 averages as much as November 21. Beginning in 2021:This fall, the anticipated federal funds price (FFR) between one and 6 quarters into the longer term is restricted to equal the corresponding median level forecast from the newest obtainable Survey of Major Sellers (SPD) within the corresponding quarter. For the present projection, that is the November SPD

The economic system turned out to be stronger in Q3 than predicted by the mannequin. This forecast error naturally pushes up the output progress forecast for the present yr however has solely a small affect on projections for exercise in any other case. The mannequin expects output progress to be 0.7 proportion factors greater in 2023 than forecasted in September (2.6 versus 1.9 %) however not very totally different from the September predictions for the remainder of the forecast horizon (1.2, 0.7, and 0.9 % in 2024, 2025, and 2026, versus 1.1, 0.7, and 1.2 % in September, respectively). The output hole is projected to be considerably decrease in 2023 than was predicted in September, because the mannequin attributes the current power of the economic system primarily to produce fairly than demand elements. The output hole predictions are just like these made in September for the rest of the forecast horizon. Inflation projections are decrease in 2023 than they have been in September (3.4 versus 3.7 %), principally as a result of Q3 inflation stunned the mannequin on the draw back. The anticipated path for inflation is unchanged in any other case: 2.2 % in 2024 and a pair of.0 % in 2025 and 2026.  

The short-run actual pure price of curiosity is anticipated to stay on the identical elevated degree as projected in September for 2023 (2.5 %), declining to 2.2 % in 2024, 1.8 % in 2025, and 1.6 % in 2026. The anticipated path of the coverage price is actually unchanged relative to September. The mannequin sees financial coverage as being restrictive via the top of 2024 within the sense that the FFR in actual phrases is above the short-term pure price of curiosity. 

Forecast Comparability

Forecast Interval 2023 2024 2025 2026
Date of Forecast Dec 23 Sep 23 Dec 23 Sep 23 Dec 23 Sep 23 Dec 23 Sep 23
GDP progress
(This fall/This fall)
2.6
 (2.2, 3.0) 
1.9
 (0.2, 3.6) 
1.2
 (-3.8, 6.2) 
1.1
 (-4.0, 6.3) 
0.7
 (-4.3, 5.7) 
0.7
 (-4.4, 5.8) 
0.9
 (-4.5, 6.3) 
1.2
 (-4.2, 6.6) 
Core PCE inflation
(This fall/This fall)
3.4
 (3.3, 3.5) 
3.7
 (3.4, 3.9) 
2.2
 (1.5, 2.9) 
2.2
 (1.5, 3.0) 
2.0
 (1.1, 2.9) 
2.0
 (1.1, 2.9) 
2.0
 (1.0, 3.0) 
2.0
 (1.0, 3.0) 
Actual pure price of curiosity
(This fall)
2.5
 (1.4, 3.5) 
2.5
 (1.3, 3.7) 
2.2
 (0.8, 3.6) 
2.2
 (0.8, 3.7) 
1.8
 (0.3, 3.3) 
1.9
 (0.3, 3.4) 
1.6
 (0.0, 3.2) 
1.6
 (0.0, 3.3) 
Supply: Authors’ calculations.
Notes: This desk lists the forecasts of output progress, core PCE inflation, and the actual pure price of curiosity from the December 2023 and September 2023 forecasts. The numbers exterior parentheses are the imply forecasts, and the numbers in parentheses are the 68 % bands.

Forecasts of Output Development 

Line chart showing forecasts of output growth generated by the New York Fed's DSGE Model.
Supply: Authors’ calculations.
Notes: These two panels depict output progress. Within the prime panel, the black line signifies precise knowledge and the purple line reveals the mannequin forecasts. The shaded areas mark the uncertainty related to our forecasts at 50, 60, 70, 80, and 90 % likelihood intervals. Within the backside panel, the blue line reveals the present forecast (quarter-to-quarter, annualized), and the grey line reveals the September 2023 forecast.

Forecasts of Inflation

Line chart showing forecasts for core PCE inflation generated by the New York Fed's DSGE Model.
Supply: Authors’ calculations. 
Notes: These two panels depict core private consumption expenditures (PCE) inflation. Within the prime panel, the black line signifies precise knowledge and the purple line reveals the mannequin forecasts. The shaded areas mark the uncertainty related to our forecasts at 50, 60, 70, 80, and 90 % likelihood intervals. Within the backside panel, the blue line reveals the present forecast (quarter-to-quarter, annualized), and the grey line reveals the September 2023 forecast. 

Actual Pure Fee of Curiosity

Line chart showing estimates for the real natural rate of interest, as generated by the New York Fed's DSGE Model.
Supply: Authors’ calculations. 
Notes: The black line reveals the mannequin’s imply estimate of the actual pure price of curiosity; the purple line reveals the mannequin forecast of the actual pure price. The shaded space marks the uncertainty related to the forecasts at 50, 60, 70, 80, and 90 % likelihood intervals. 

Marco Del Negro is an financial analysis advisor in Macroeconomic and Financial Research within the Federal Reserve Financial institution of New York’s Analysis and Statistics Group.

Pranay Gundam is a analysis analyst within the Federal Reserve Financial institution of New York’s Analysis and Statistics Group. 

Photo: portrait of Donggyu Lee

Donggyu Lee is a analysis economist in Macroeconomic and Financial Research within the Federal Reserve Financial institution of New York’s Analysis and Statistics Group.

Ramya Nallamotu is a senior analysis analyst within the Federal Reserve Financial institution of New York’s Analysis and Statistics Group. 

Brian Pacula is a analysis analyst within the Federal Reserve Financial institution of New York’s Analysis and Statistics Group.

How one can cite this put up:
Marco Del Negro, Pranay Gundam, Donggyu Lee, Ramya Nallamotu, and Brian Pacula, “The New York Fed DSGE Mannequin Forecast—December 2023,” Federal Reserve Financial institution of New York Liberty Road Economics, December 15, 2023, https://libertystreeteconomics.newyorkfed.org/2023/12/the-new-york-fed-dsge-model-forecast-december-2023/.


Disclaimer
The views expressed on this put up are these of the creator(s) and don’t essentially replicate the place of the Federal Reserve Financial institution of New York or the Federal Reserve System. Any errors or omissions are the accountability of the creator(s).

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