Final Debt Impact
Change in debt/GDP ratio
Max Unemployment Effect
Peak change in unemployment
Key Variable Deviations
Impact Analysis
Fiscal Multiplier
Deviation Summary Statistics
All deltas in current scenario
The Budget Lab Small Macro Model (BLSMM) is an interactive tool for exploring how fiscal and monetary policies affect the U.S. economy over a 10-year horizon (FY2026–FY2035). The model simulates interactions between government spending, taxation, Federal Reserve policy, potential growth, interest rates, and national debt.
Who should use it:
- Policy analysts studying tax and spending proposals
- Researchers exploring fiscal-monetary interactions
- Students learning macroeconomic policy dynamics
What you can learn:
- How policy changes affect growth, unemployment, inflation, and debt
- Automatic economic responses (e.g., Fed reacts to inflation, interest costs rise with debt)
- Trade-offs and side effects of policy choices
Getting started
- Build a custom scenario in the Controls sidebar or start with a preset (AI Adoption, Persistent Inflation, Higher Defense Spending).
- Click Run Simulation and wait for the status indicator to read Simulation Complete .
- Use the Levels / Deviations from baseline tabs on the Results page to compare baseline and scenario.
- Download the raw numbers via Export Results (CSV or Excel) in the sidebar.
Tip: most scenarios only need one or two assumption categories. The preset buttons populate realistic multi-category shocks if you want a starting point.
Reading the results
Chart conventions:
- Baseline lines are dashed ; scenario lines are solid . Both use the same color because they represent the same variable.
- Rates and inflation are in percentage points. Debt and budget deficits are percent of GDP.
- For budget-deficit charts, higher values = larger deficit.
Key variables to watch:
- Output Gap: Positive = economy overheating. Negative = economic slack. The Fed tries to close this gap.
- Unemployment: Connected to the output gap through Okun's Law.
- Inflation: Above baseline means the scenario is inflationary.
- Debt / GDP: The key long-run fiscal indicator.
- Interest Rates: Fed response (Federal Funds) and market response (10-year yield, r*).
- Primary Balance: Deficit before interest costs. Compare to debt/GDP for sustainability.
Warning signs in your simulation:
- Debt/GDP rising sharply without stabilizing
- Inflation persistently far from the Fed's 2% target
- Interest rates hitting zero (the model has limitations at the zero lower bound)
- Unrealistic combinations (e.g., very large deficits with no interest-rate response)
Example use cases
- Tax Reform Analysis: Model a corporate tax cut and see effects on growth, deficits, and interest rates
- Fiscal Consolidation: Test different paths to reduce debt-to-GDP (spending cuts vs. tax increases vs. growth)
- Fed Policy Changes: Explore higher inflation targets or unconventional monetary policy
- Growth Scenarios: Study effects of productivity slowdowns or labor force changes
- Policy Interactions: See how fiscal and monetary policies work together or in opposition
Advanced: technical details
Model overview
- Type: Structural macroeconomic model
- Frequency: Annual (fiscal years, October 1 – September 30)
- Version: 1.0
- Structure: 9 simultaneous equations + pre-simulation block + fiscal block
- Parameters: 39 calibrated parameters
Model components
- Macro block: Output gap with 8-period distributed lags, unemployment (Okun's law), inflation (Phillips curve), inflation expectations
- Monetary block: Taylor rule, term structure of interest rates, endogenous real neutral rate (r*)
- Fiscal block: Debt dynamics, net interest payments, primary balance, fiscal feedback to outlays
- Neutral rate block: r* responds to potential growth and debt/GDP
Simple vs. year-by-year inputs
Each assumption in the drawer defaults to a simple shape + magnitude UI (permanent / one-time / linear ramp / three-year temporary). If you need the full 10-year path, expand the Edit year-by-year disclosure under any input to edit individual FY2026–FY2035 cells directly.
Key features
- Endogenous neutral rate that responds to growth and debt
- Automatic fiscal feedback (spending adjusts to growth)
- Rich dynamics through distributed lags
- Year-by-year control over all inputs (FY2026–FY2035)
- Real-time convergence diagnostics in the sidebar
For questions or support, contact The Budget Lab.