An attempt to employ a large model to calculate the equilibrium nominal federal funds rate can be found in an article by Antulio Bomfim.1 Using the MPS model, the predecessor to the Board staff’s current model, Bomfim found that the equilibrium nominal funds rate varied in a range from 2 percent to 14 percent over the period from 1965 to 1994, implying that his estimate of the equilibrium real rate turned negative at times.
The practices in this regards not only differ from one bank to another but within the same bank there are diametrically opposite view points at two different branches on such matters. Nobody is keen on following the model policy evolved by the IBA for the purpose. Can the BCSBI’s codes be made more effective to address these issues faced by the common persons?