ABSTRACT
A completely specified macroeconometric model will include a production function and the demand equations for those factors which enter the production function. The model builder is free to choose among various normalization rules for these sets of equations. The interrelationships among the parameters of these equations, however, are determined by the particular specification of the production function chosen and upon economic theory. If these interrelationships are ignored during the estimation of the factor demand and production relations then the parameter estimates will be inconsistent with the production technology intended by the model builder. These inconsistencies become particularly serious if the model is to be used for simulation or forecasting experiments because the results of these experiments may be misleading.
