ABSTRACT
This book is concerned with macroeconomic models. These have been used regularly for the last 30 years or so. They have been used by the private sector, in academic institutions and in government and official agencies to analyse the economy and to evaluate macroeconomic policies, and to make predictions about the likely future behaviour of the economy (forecasts). Macroeconomic model has become widely accepted as the standard approach to forecasting and policy evaluation in the industrial economies of Europe, North America and Japan, because of the growing awareness of the importance of work of this kind, the last three decades, in particular, have witnessed an accelerated growth in the construction and estimation of macroeconometric models for both industrial and less developed countries (LDCs). As economic links between nations have increased, so there have been attempts to incorporate the joint dependence of economics, either through linked models or by construction of global (world) models. Despite the fact that macroeconometric modelling is now an established activity, it has not been without its critics. This book is an attempt to describe how macro models have developed, to give a picture of their current level of development, and to examine some of the issues, both economic and technical, that arise in their construction and use. Particular emphasis is placed upon the policy implications arising from different macro models. The book is about the construction of models through econometric estimation methods. Macroeconomic models in general use have tended to follow a rather aggregate time-series approach, and the book therefore rather inevitably centres on this, but at the same time it critically compares the usefulness of the ‘standard’ modelling approach with models based on other methods, such as vector autoregressive methods (VARs), computable general equilibrium (CGE) models and representative agent models.
