A0322
Title: A unified framework to estimate macroeconomic stars
Authors: Saeed Zaman - Federal Reserve Bank of Cleveland (United States) [presenting]
Abstract: A semi-structural time series model is developed to estimate jointly several macroeconomic ``stars,'' i.e., unobserved long-run equilibrium levels of output (and growth rate of output), unemployment rate, the real rate of interest, productivity growth, price inflation, and wage inflation. The ingredients of the model are in part motivated by economic theory and, in part, by the empirical features necessitated due to the changing economic environment. We explicitly model the links between long-run survey expectations and stars to improve the stars econometric estimation. The approach permits time-variation in the relationships between various components, including time-variation in error variances. Our approach's by-products are the time-varying estimates of the wage and price Phillips curves, passthrough between prices and wages, which provide new insights into these empirical relationships' instability in US data. Generally, the contours of our stars echo those documented elsewhere in the literature -- estimated using smaller models -- but at times, the estimates of stars are different, and these differences have policy implications. Furthermore, the estimates of the stars are among the most precise. Lastly, we document the competitive forecasting properties of our model and, separately, the usefulness of stars estimates if they were used as steady-state values in external models.
