Part one · a test on the data
Can you predict spending?
Hall’s benchmark pictures households who all look ahead, which makes the change unpredictable. A predictable part can be the trace of households who spend as they earn: the next question measures it.
simulated
The published benchmarks
What these data can say simulated
Part two · a lab about a model
The lab with three equations
Spend
Households look ahead: they spend on what they expect, and a higher real interest rate makes them spend later.
Price
Firms that set prices look ahead, because changing a price is costly: expected inflation and today’s output gap move inflation.
Rate
A rule sets the interest rate from inflation and the output gap.
The forward guidance puzzle
With the nominal rate held still until then instead, the effect today grows the further ahead the promise is, which the committee's background calls “unreasonably strong”, with no consensus explanation yet.