Behavioral and Social Science 50 Years of Discovery (1986) / Chapter Skim
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Macroeconomic Modeling and Forecasting
Macroeconomic Modeling and Forecasting
Pages 95-110
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From page 95... ...
He was plainly impressed and inspired by the implications of the Keynesian Revolution, but his greatest work on econometric models, that of the United States for the League of Nations, was never put to practical use in the national scene. His model estimation for the Netherlands formed the basis for Dutch postwar economic policy implementation at the Central Planning Bureau, which he directed after World War II.
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From page 96... ...
Several lines of thought converged at the Cowles Commission during the middle and late 1940s. These were: · The concept of a mathematical model of the macro economy · An emerging theory of econometric method · A growing body of statistical data on the national economy The macro model concept built on the intense intellectual discussions among economists about the interpretation of the theories of J.M.
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From page 97... ...
During the period of enthusiastic development at the Cowles Commission it was thought that applications of the most sophisticated and powerful methods of statistical analysis would provide a breakthrough in practical accomplishments, but complexity of computation remained a bottleneck. Only demonstration models could be given a full statistical treatment, and that was very laborious.
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From page 98... ...
All the bottlenecks that had appeared earlier were suddenly broken. Econometric scholars were able to handle data much better and explore data much more extensively in the search for good estimates, but there was no seeming increase in accuracy, efficiency, or applicability of econometric models from this particular line of research.
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From page 99... ...
It is now a routine method used worldwide for solving systems of simultaneous equations in economics. Once the method had been streamlined for either nonlinear or linear econometric models, the technique of simulation was extensively developed for the analysis of numerical models.
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From page 100... ...
Some direct tests of economic theory have been decisive, but we often come up against the fact that the data of economics, which form the sampling basis for econometric inference, are not sharp enough or abundant enough
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From page 101... ...
t + ut I~ = net real investment in period t Cat = rate of change of real consumption during period t Me = money supply at time t [GNP ($~' = nominal GNP during period t en, us = random errors a,k = parameters If we hypothesize that It is proportional to C' apart from an additive random error that is obtained from a fixed distribution with finite variance and no serial correlation, we would find that the data do not support this model. It is, of course, a simple model, and if it is generalized by replacing C' by total real output and introducing other variables such as capital cost and capital stock we get the generalized accelerator, which does appear to fit the facts.
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From page 102... ...
Some macroeconometric models that were thought to rest firmly on accepted hypotheses, such as the St. Louis model, the Fair model, or various supply-side models, did so poorly in predictive testing that they were deemed failures (McNees, 1973; Fair, 1976; Andersen and Carlson, 19761.~ Monetarist economists were enthusiastic about their hypotheses in the late 1960s, but when the St.
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From page 103... ...
After the implementation of LINK in analyzing the world economy for such things as oil price shocks and predictions of various global totals, many other supranational systems have been designed: INTERLINK, by the OECD; the TSUKUBA-FAIS Model by Tsukuba University, Japan; the Multicountry Model of the Federal Reserve Board; the World Economic Model of the Economic Planning Agency, Japan; the FUGI Model of Soka University, Japan; and the World Model of Wharton Econometrics. These systems vary according to size and focus.
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From page 104... ...
This procedure generalizes the entire concept of the multiplier, which is meant to show the relationship between any particular endogenous variable (Yi') and any corresponding exogenous variable Axe: Alit exit other x's unchanged This general expression includes the original Keynesian multiplier dGNP dI 1 - mpc mpc = marginal propensity to consume GNP = real gross national product I = real investment (exogenous)
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From page 105... ...
For example, bank reserves are instruments affected by the Federal Reserve system's open market operations that are fixed at certain values in order to achieve policy targets such as various money supply aggregates. The formal theory establishes the choice of instruments in relation to target goals in the framework of a loss or gain function that the policymakers attempt to optimize, subject to the constraints
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From page 106... ...
Time series models do not provide a flexible vehicle for scenario analysis, but they do provide forecasts. The contest between time series and macroeconometric models will continue on its present course, and it is plausible to believe that each has something to learn from the other, but there is also another possible route in which they may be developed together for construction of a better system.
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From page 107... ...
This is entirely possible in small systems but not in the large models presently in use. Instead, common practice is to estimate nonzero values for the stochastic component to bring the model solution close to reality for the initial period before extrapolation.
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From page 108... ...
Economists tend to draw a line and delegate responsibility to demographers for birth, death, morbidity, and other population statistics; to criminologists for crime statistics; to psychologists for attitudinal variables; to political scientists for voting magnitudes, and so on. Usually, these external magnitudes are classified as exogenous variables, but many interact with the economic system in feedback relationships.
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From page 109... ...
Louis econometric models. New England Economic Review (September-October)
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From page 110... ...
Suits, D.B. 1962 Forecasting win an econometric model.
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