How to Use the FRB/US Model for Economic Analysis

What is the FRB/US Model?

The FRB/US model is the Federal Reserve Board's primary large-scale econometric model used for:

• Forecasting the U.S. economy
• Analyzing monetary policy alternatives
• Studying economic shock propagation
• Research and academic analysis

Our interactive visualization makes this powerful tool accessible for students, researchers, and policy analysts.

Getting Started

1. Access the Model: Navigate to our interactive FRB/US simulator
2. Select a Sector: Click on any node in the network (e.g., Monetary Policy, Household Sector)
3. Choose a Shock: Select from available shocks for that sector
4. Set Parameters: Adjust magnitude and persistence
5. Run Simulation: Click "Apply Shock" to see results

Types of Economic Shocks You Can Simulate

Monetary Policy Shocks

• Rate Changes: Federal funds rate increases or decreases
• Forward Guidance: Communication about future policy path
• Quantitative Easing (QE): Large-scale asset purchases

Fiscal Policy Shocks

• Government Spending: Changes in federal purchases
• Tax Policy: Tax cuts or increases
• Transfer Payments: Stimulus checks, unemployment benefits

Real Economy Shocks

• Productivity: Technology and efficiency changes
• Labor Market: Participation rate, unemployment shifts
• Consumer Confidence: Sentiment-driven demand changes

Financial Market Shocks

• Risk Premiums: Flight to quality episodes
• Credit Conditions: Banking sector stress
• Asset Prices: Stock market movements

Interpreting the Results

Impulse Response Functions (IRFs)

The charts show how key variables respond over time to your selected shock:

• GDP: Percentage deviation from baseline
• Inflation: Change in PCE inflation rate
• Unemployment: Change in unemployment rate
• Interest Rates: Federal funds rate path

Network Animation

The network visualization shows shock propagation through economic sectors:

• Color intensity indicates impact magnitude
• Animation timing shows transmission lags
• Link highlighting traces causal pathways

Advanced Features

Monetary Policy Rules

Compare different Fed reaction functions:

• Taylor Rule: Standard policy benchmark
• Inertial Taylor: With interest rate smoothing
• Threshold-Based: With unemployment/inflation triggers

Expectations Formation

Model how agents form expectations:

• VAR: Backward-looking expectations
• Model-Consistent: Rational expectations for specific sectors

Shock Persistence

• Temporary: One-quarter shock
• Persistent: Gradually decaying (AR = 0.8)
• Permanent: Sustained level shift

Research Applications

Academic Research

• Monetary policy transmission mechanisms
• Fiscal multiplier estimation
• Business cycle analysis

Policy Analysis

• Evaluating policy rule alternatives
• Stress testing economic scenarios
• Forecasting under different assumptions

Educational Use

• Teaching macroeconomic dynamics
• Illustrating policy trade-offs
• Demonstrating model mechanics