Real-Time Model Uncertainty in the United States: The Fed, 1996–2003

We study 30 vintages of FRB/US, the principal macro-model used by the Federal Reserve Board staff for forecasting and policy analysis. We document the surprisingly large and consequential changes in model properties that occurred during the period from July 1996 to November 2003 and compute optimal Taylor-type rules for each vintage. Model uncertainty is shown to be a substantial problem; the efficacy of purportedly optimal policy rules should not be taken on faith. We also find that previous findings that simple rules are robust to model uncertainty may be an overly sanguine conclusion.