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Authorized for public release by the FOMC Secretariat on 04/29/2016 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Division of Monetary Affairs FOMC SECRETARIAT Date: December 10, 2009 To: Governors and Reserve Bank Presidents From: Matthew M. Luecke Subject: Additional Background Paper on Inflation Dynamics President Evans asked that the attached background paper by Chicago Fed staff, entitled “Output Gaps and Inflation in DSGE Models,” be distributed. He notes that it is a counterpoint to the negative findings on DSGE models and output gaps in the “Gaps and Monetary Policy” paper, which was distributed last week. The Chicago Fed paper describes a constructive, mainstream DSGE model that builds on work by Christiano, Eichenbaum, and Evans (2005) and produces a very high correlation between measures of fundamental inflation and the output gap. 1 of 1
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