|Finance and Economics Discussion Series                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
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|Abstract: FRB/US is a large-scale quarterly econometric model of the
U.S. economy, developed to replace the MPS model.  Most behavioral
equations are based on specifications of optimizing behavior
containing explicit expectations of firms, households, and financial
markets.  Although expectations are explicit, the empirical fits of
the structural descriptions of macroeconomic behavior are comparable
to those of reduced-form time series models.  In most instances, tests
do not reject overidentifying restrictions of rational expectations or
the hypothesis of serially independent residuals.  As modeled, private
sector expectations of policy constitute a major transmission channel
of monetary policy.Keywords: Macroeconomic models, private sector learning, rational expectations, vector autoregressions
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