Macroeconomic Modeling for Monetary Policy Evaluation Jordi Gali and Mark Gertler NBER Working Paper No.13542 October 2007 JEL No.E31.E32,E52 ABSTRACT We describe some of the main features of the recent vintage macroeconomic models used for monetary policy evaluation.We point to some of the key differences with respect to the earlier generation of macro models,and highlight the insights for policy that these new frameworks have to offer.Our discussion emphasizes two key aspects of the new models:the significant role of expectations of future policy actions in the monetary transmission mechanism,and the importance for the central bank of tracking of the flexible price equilibrium values of the natural levels of output and the real interest rate.We argue that both features have important implications for the conduct of monetary policy. Jordi Gali Centre de Recerca en Economia Internacional(CREI) Ramon Trias Fargas 25 08005 Barcelona SPAIN and NBER jordi.gali@upf.edu Mark Gertler Department of Economics New York University 269 Mercer Street,7th Floor New York,NY 10003 and NBER mark.gertler@nyu.eduMacroeconomic Modeling for Monetary Policy Evaluation Jordi Galí and Mark Gertler NBER Working Paper No. 13542 October 2007 JEL No. E31,E32,E52 ABSTRACT We describe some of the main features of the recent vintage macroeconomic models used for monetary policy evaluation. We point to some of the key differences with respect to the earlier generation of macro models, and highlight the insights for policy that these new frameworks have to offer. Our discussion emphasizes two key aspects of the new models: the significant role of expectations of future policy actions in the monetary transmission mechanism, and the importance for the central bank of tracking of the flexible price equilibrium values of the natural levels of output and the real interest rate. We argue that both features have important implications for the conduct of monetary policy. Jordi Galí Centre de Recerca en Economia Internacional (CREI) Ramon Trias Fargas 25 08005 Barcelona SPAIN and NBER jordi.gali@upf.edu Mark Gertler Department of Economics New York University 269 Mercer Street, 7th Floor New York, NY 10003 and NBER mark.gertler@nyu.edu