7. The demand side of this model is similar to Taylor (1993a) and Taylor and Williams (1993), while the wage-price sector is taken from Fuhrer (1997b).

8. The consumption equations are based on the life-cycle theory and include different marginal propensities to consume out of different categories of wealth (labor income, property income, stock market) reflecting the differing characteristics of the owners of these assets. See Brayton (1997b) for a discussion.

9. For FM we use the estimated parameters from Fuhrer (1997a). The MSR model uses the parameter estimates of Fuhrer (1997b), for which the implied response of inflation to output gaps is substantially larger than in Fuhrer (1997a) and more similar to the results of Fuhrer and Moore (1995).

10. For example, using TAYMCM, we computed optimal policies under two alternative assumptions regarding foreign monetary policies. In the baseline case, each foreign country is assumed to follow an independent constant growth rule for money; in the alternative case, the EU countries are assumed to follow a single currency policy described by a Taylor (1994) rule and Canada and Japan follow independent policies using the same Taylor rule specification. The optimal U.S. policy rules were almost identical across the two cases. Details are given in the Appendix.

11. This version of the model is typically referred to as FRB/US, while the full model is referred to as FRB/GLOBAL.

12. Inflation is measured using the chain-weighted GDP deflator and the output gap is based on estimates of potential output supplied by the Congressional Budget Office. This rule forms part of the MSR model and is taken from Orphanides and Wieland (1997).

7. The demand side of this model is similar to Taylor (1993a) and Taylor and Williams (1993), while the wage-price sector is taken from Fuhrer (1997b). 8. The consumption equations are based on the life-cycle theory and include different marginal propensities to consume out of different categories of wealth (labor income, property income, stock market) reflecting the differing characteristics of the owners of these assets. See Brayton (1997b) for a discussion. 9. For FM we use the estimated parameters from Fuhrer (1997a). The MSR model uses the parameter estimates of Fuhrer (1997b), for which the implied response of inflation to output gaps is substantially larger than in Fuhrer (1997a) and more similar to the results of Fuhrer and Moore (1995).