The job of incorporating financial factors into real economy models is still far from finished, according to the outgoing president of the Federal Reserve Bank of New York.
“There has been progress incorporating financial factors into these models,” says William Dudley, referring to the dynamic stochastic general equilibrium model. “We were nowhere. Now we’re probably at the first or second grade.”
In an interview published on the NY Fed’s Liberty Street blog, Dudley emphasised the importance