Finance and Economics Discussion Series

This paper derives and presents mean leads and lags as well as patterns of relative importance weights implied by the PAC (polynomial-adjustment-cost) error-correction equations which form the core of the FRB/US model at the Federal Reserve Board. Relative importance weights measure the contributions of past and future expected changes in fundamentals on current decisions. These and the associated mean lags and leads can be considered summary measures of key dynamic properties of FRB/US. The spending equations are those for total consumption, durables consumption, business equipment, residential housing, and private inventories. The pricing equations are those for the price level and wage growth. In addition FRB/US has one PAC equation for dividends and one for labor hours.