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Philadelphia Research Intertemporal Stochastic Model-II (PRISM-II)

The Philadelphia Research Intertemporal Stochastic Model-II (PRISM-II) is the second-generation dynamic stochastic general equilibrium (DSGE) model that is being developed by the Research Department of the Federal Reserve Bank of Philadelphia. PRISM-II is a medium-scale economic model estimated using Bayesian methods that features the various nominal and real frictions that were present in the first-generation PRISM, but that in addition explicitly incorporates a role for the unemployment rate arising from labor market search frictions. The model is under continued development and is being maintained by the Research Department’s Real-Time Data Research Center (RTDRC). While the model is used in some of the department’s forecasting and policy projects, it is important to note that the output of the PRISM-II model is not an official forecast of the Philadelphia Fed, the Philadelphia Fed president, the Federal Reserve System, or the Federal Open Market Committee.

About the PRISM-II Model

The PRISM-II model comprises about 30 equations and is estimated/simulated using the MATLAB programming language. A formal description of the model and its equations can be found in the Technical Appendix. The RTDRC will regularly post on its website forecasts from the model for key macroeconomic variables.

PRISM-II Forecasts

The PRISM-II charts show forecasts of key variables from the latest run of PRISM-II. Each figure shows the forecasted growth rate of the macroeconomic variable as well as the upper and lower bounds of the 68 percent probability coverage interval for the forecast (i.e., there is a 68 percent chance that the forecast falls within the bands). The vertical dotted line shows the forecast kickoff point.

For details on data sources and how the series are constructed, see the Technical Appendix.

Forecasts from February 2020 and earlier were generated from the first-generation PRISM model.

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