Consistent with the definition of a steady state, at the start of the simulations, the output gap is closed, the unemployment rate is equal to its natural rate of 4.8 percent, inflation is 2 percent, the nominal federal funds rate is 3 percent, the 10-year Treasury bond rate is 3.5 percent, and potential output growth is 2 percent.
Except as otherwise noted, tax rates are held fixed at their baseline levels for four years, after which fiscal policy is allowed to respond by gradually adjusting the federal personal income tax rate to stabilize the ratio of federal government fiscal deficits to gross domestic product (GDP) at its assumed baseline target level.