Pii: S0167-2231(98)00003-7

This paper gives an excellent overview of the way that econometric models are used to help formulate monetary policy at the Federal Reserve Board. David Reifschneider, David Stockman, and David Wilcox stress at the start of their paper that econometric models are used to help the staff of the Fed "support the monetary policymaking endeavors" of the Federal Open Market Committee (FOMC) rather than make recommendations to the FOMC. In practice I think it is harder than the authors suggest to distinguish "giving support" from "making recommendations." But regardless of how one characterizes the staff/FOMC interaction at the Fed, the paper clearly demonstrates that econometric models are now a remarkably large part of the policymaking process. Econometric modeling is apparently an indispensable part of FOMC decision-making. Given this importance of models to the FOMC, this paper is especially welcome because it makes the monetary process more transparent. An important theme that emerges from the paper is that there is a wide variety of applications of a wide variety of econometric models at the Fed. In my comments I would like to focus on (1) the major paradigm shift in econometric modeling at the Fed in the last several years, (2) the general theoretical and econometric features of the main structural models now in use at the Fed, (3) the treatment of money and credit in these models, and (4) the significance of policy rules as part of the policy-evaluation process.