Principles of macro-econometric modeling

Preface. Models of the Economy as a Whole. What is a model? A Macroeconomic model – a new approach. Another accounting system, input-output (I-O). Yet another accounting system, flow-of-funds (F/F). Models of the Centrally Planned and Transition Economies. The basic framework. Demand determined models. Supply determined systems: the supply side. Fully supply determined systems. Quasi-supply determined systems. Disequilibrium macromodels. The use of macroeconometric models. Major Topics in Macromodelling. Final and intermediate demand functions. Supply determination. Production functions and production potential. Price and wage equations. Financial flows. Project Link. The LINK Matrix. The LINK algorithm. Some LINK applications. New directions for LINK. Simulation. Formulas of simulation. The Gauss-Seidel algorithm: linear case. The Gauss-Seidel algorithm: nonlinear case. The Newton method. Stochastic simulation. Model Validation. Sources of error. Descriptive measures of error. Analytical measures of error. Some limits to accuracy. Dynamic Analysis. A theory of economic fluctuations. Some sinusoidal limit theorems for econometric models. Otsuki’s sinusoidal limit theorem. Measurement – the spectral approach to the frequency domain. Measurement – an autoregressive approach in the time domain. Some interpretations of economic dynamics. New directions in time series analysis. VAR models. Stationarity and non-stationarity. Equilibrium relationships and cointegration analysis. Rational expectations. Multiplier and Policy Analysis. Multipliers. Some multiplier tabulations and policy simulations. Optimal economic policy. Forecasting. Ex ante prediction. Forecast preparation. The forecast horizon. Combinations of high and low frequency forecasts. Ex ante forecast error.