ABSTRACT

The construction of dynamic economic models has become an important tool for the analysis of economic fluctuations and for related problems of policy. in these models, macroeconomic variables are thought of as determined by a complete system of equations. The meaning of the term complete is discussed more fully below. At present, it may suffice to describe a complete system as one in which there are as many equations as endogenous variables, that is, variables whose formation is to be “explained” by the equations. The equations are usually of, at most, four kinds: equations of economic behavior, institutional rules, technological laws of transformation, and identities. We shall use the term structural equations to comprise all four types of equations.