Macroeconometric models PDF
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Advanced Studies in Theoretical and Applied Econometrics Volume 47 ManagingEditors B.H.Baltagi,SyracuseUniversity,Syracuse,USA Y.Hong,CornellUniversity,Ithaca,USA G.Koop,UniversityofStrathclyde,Glasgow,UK W.Krämer,TUDortmundUniversity,Dortmund,Germany EditorialBoard F.G.Adams,UniversityofPennsylvania,Philadelphia,USA P.Balestra†,UniversityofGeneva,Geneva,Switzerland M.G.Dagenais,UniversityofMontreal,Montreal,Canada D.Kendrick,UniversityofTexas,Austin,USA J.H.P.Paelinck,NetherlandsEconomicInstitute,Rotterdam,TheNetherlands R.S.Pindyck,SloaneSchoolofManagement,M.I.T.,Cambridge,USA W.Welfe,UniversityofŁódz´,Łódz´,Poland Forfurthervolumes: http://www.springer.com/series/5667 Władysław Welfe Macroeconometric Models WładysławWelfe InstituteofEconometrics UniversityofŁódz´ Łódz´,Poland ISSN1570-5811 AdvancedStudiesinTheoreticalandAppliedEconometrics ISBN978-3-642-34467-1 ISBN978-3-642-34468-8(eBook) DOI10.1007/978-3-642-34468-8 SpringerHeidelbergNewYorkDordrechtLondon LibraryofCongressControlNumber:2013930305 ©Springer-VerlagBerlinHeidelberg2013 Thisworkissubjecttocopyright.AllrightsarereservedbythePublisher,whetherthewholeorpartof thematerialisconcerned,specificallytherightsoftranslation,reprinting,reuseofillustrations,recitation, broadcasting,reproductiononmicrofilmsorinanyotherphysicalway,andtransmissionorinformation storageandretrieval,electronicadaptation,computersoftware,orbysimilarordissimilarmethodology nowknownorhereafterdeveloped.Exemptedfromthislegalreservationarebriefexcerptsinconnection with reviews or scholarly analysis or material supplied specifically for the purpose of being entered and executed on a computer system, for exclusive use by the purchaser of the work. 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Printedonacid-freepaper SpringerispartofSpringerScience+BusinessMedia(www.springer.com) To myson—Aleksander Foreword by Lawrence R. Klein The growth of econometric model building is known and used for understanding whathasbeentakenthroughouttheacademicandbusinessactivitiestheworldover. Manyoftheearlieststudiesgrewasthesubjectofeconomicsdevelopedatacademic centres and have become established in many countries; the earliest activities are nowtobetakenforgrantedandarestillexpanding. In the remarkable expansion of the underlying subject is now covered over the world every day, in small investigations and have grown to many of the largest investigationsofthemeaningofeconomics,andthewholeeconomicprofessionis thankfulthatProfessorWładysławWelfeofUniversityofŁódz´,Polandhasserved theworld’sAcademywiththebeautifulsubjectforallreadersofthisbooktodigest. LawrenceR.Klein vii Foreword by Carlo D’Adda My knowledge of Władysław Welfe goes back many years and is indirectly con- nectedwithourparticipationintheProjectLink,anambitiousenterprisestartedat the beginning of the Nineteen Seventies and aiming at constructing a network of national econometric models, with the ultimate purpose to permit the simulation of the whole world economy. The project was guided by Lawrence Klein. When he was awarded the Nobel prize the Project Link was explicitly mentioned. I re- member that Władysław Welfe joined a yearly meeting of Project Link organized in Perugia (Italy) and hosted by the Bank of Italy to give the participants, coming frommanycountries,thechancetoexchangetheirresultsandtheoccasiontodis- cussproblemsofmutualinterest.ProfessorWelfewasalreadyarecognizedmaster inhisdiscipline,butcomingfromPolandinthedaysofSolidarnoschewasalsothe bearer of fresh news from the Eastern Europe that everybody was eager to know. There was much attention around him. Scientifically many of the participants had theopportunityofrealizingthateconometricswasnotonlyinterestingforthewest- ernresearchers,butfortheireasterncolleaguesaswell.Somepieceofthewallwas alreadyfalling. InthecourseoftimeWładysławtoldmemuchofhislife.Hespoketomeabout the years spent in the obstinate and unsuccessful search for some news about the endofhisfather(amedicalofficerofthePolishmilitary)duringthesecondWorld War.Atthesametimehewaspushedbythepurposeoflearningstatisticalmethods andtechniquesappliedto economicproblems.Lateron,whenit becamepossible, WładysławwenttotheUKandbecamefamiliarwitheconometricresearchasitwas practiced and thought in the western countries. In Oxford he came in touch with LawrenceKleinstartingadialogueandafriendshipthatarestillgoingon.During his professional career Władysław has had the opportunity, and also the pleasure, ofvisitingcentresforeconomicandeconometricresearchinmanycountriesofthe world.Notablyheplayedarelevantroleinpromotingtheprogressofhisdiscipline inseveralEastEuropeancountries,includingCzech,theSlovakRepublicandBul- garia.InEuropehisInstituteofEconometricsandStatisticsinŁódz´ hasbecomea wellknownscientificcentretowhichmanyresearcherslookwithinterest.Awarding himthetitleofDr.hc.theUniversityofŁódz´ wantedtorecognizehismerits. ix x ForewordbyCarloD’Adda Introducingthepresentbook,MacroeconometricModels,isanunexpectedhon- ourformeandalsoanintellectualtaskthatwouldrequireanexperiencecomparable totheoneoftheAuthor.ThisfruitofWładysławWelfe’slastlabourisamonumen- talworkinthesensethathereviews,classifiesandanalysesanincrediblenumber ofcontributionsandpublications.Thereaderofthisbookwhoisnotaneconomist specializedinthefieldofmacromodelsmayevennotimaginethattherearecoun- tries,inparticularindustrialcountries,forwhichdozensandorhundredsofmodels ofthenationaleconomyhavebeenconstructedovertheyears. Theprerequisitetobuildaneconometricmodelofthewholenationaleconomy istheavailabilityofadequatestatistics.Itmustbeborninmindthattheexistenceof asophisticatedsystemofnationaleconomicstatisticssuchastheonetowhichwe arenowusedistheresultofrelativelyrecentefforts.WhenKeynes’sGeneralThe- ory of Employment Interest and Money was firstly published (1936) a satisfactory statistical data basis wasn’t available and the model that appeared so appealing to understandthepossibilityforaneconomicsystemtobetheprisonerofadepression wasnotsusceptibleofstatisticalestimationandtest.Yetthatverysituationsignalled theexistenceofagapbetweendemandforandsupplyofstatisticalmacrodata.Over aboutaquarterofacenturythatgapwasfilledandsincethenmuchfurtherprogress hasbeendoneintheareaofdatacollection. Butdatawerenottheonlyproblem.Almostincoincidencewiththeappearance oftheKeynesianideastheproblemofanappropriatescientificmethodologytotest ofeconomictheories(inanalogytowhatwashappeningsinceacenturyinthefield ofhardsciences)startedtobeneeded.In1933agroupofdistinguishedeconomists includingR.Frish,J.A.SchumpeterandKeyneshimselffoundedtheEconometric Society “for the advancement of economic theory in its relation to statistics and mathematics”.Econometrics,anewdisciplinewithscientificlocationbetweeneco- nomicsandstatistics,hadcomeintoexistence. A question comes natural at this point: do econometric models, in particular macro models, help discriminating among economic theories enabling us to sep- aratefalsefromtruetheories?Thequestionisbyfarmorecomplicatedthananaïf reader of Welfe’s book may imagine. As a matter of fact the Author of this book is careful in distinguishing the parenthood of the models he reviews and classifies butdoesn’twanttoenterthephilosophicalproblemoffalseandtruetheories.Inthe field of social sciences theories are always partial representations of reality and it happensthat“ifyoumakeassumptionsenough”mosttheorieshavearighttoexist. Alongthewaythathasledtothebiggestandmoresophisticatedmodelsofeither thenationaleconomiesorofthewholeworldeconomy(oftenincludinghundredsof equations)andafterthepioneeringcontributionsofthefathersofmoderneconomet- rics,T.HaavelmoandJ.Tinbergen,afundamentalstepaheadisrepresentedbythe well-known Klein-Goldberger 1955 model (An Econometric Model of the United States1929–1952).Aphaseofassimilationwasnecessarybutafterthat,especially sincetheendoftheNineteenSixties,theKlein-Goldbergermodelwasrecognized asthevanguardofabloomingofnationalandinternationalmacromodels.Nonethe- lessitwouldbeamistakethinkingthatthisfortunateresearchstreamhasdeveloped withouttheoreticaldoubtsandcontradictions.Themostrelevanttheoreticaldisputes ForewordbyCarloD’Adda xi in economics of the last decades of the nineteenth century, such as the monetary controversy(FriedmanversusKeynesianschool),aswellastheupsurgeofthesup- plysideversusdemandtheories,letaclearimprintingonthestreamofeconomet- ricmacromodelsthatprogressivelycametoexistence.Butevenmoredangerously sometheoreticalattacksseemedsoradicalattheironsettopossiblycompromisethe futureofmacromodels.IamthinkingoftheLucascritique(1976)focusedonthe connectionbetweenexpectationsandthesetofpossibleeconomicpolicyrules,with theconsequencetomakepredictiontheoreticallyimpossible.Haveappliedecono- metricians proceeded with their large scale models remaining dumb to the Lucas’ critique?Thismaysometimeshavebeentheimpression,butitisnotnecessarilyso. Practitionersliketosaythattheuseoftheirlargescalemodelsisan“art”meaning thatthewayamodelisrunmayallowforcorrectionstomerelymechanicalresults. Intheirview(inthewaitofthenecessarytheoreticalimprovements)intuitionmay tosomeextentremedytheshortcomingsoftheexistingmodels.Thinkforexample ofthepracticeofpresentingscenariostowhichsubjectiveprobabilitiesmaybeat- tached.TwentyyearsaftertheLucas’critique(1996)C.Sims,evenifraisingnew doubts about the traditional (probabilistic) approach to identification, has consid- erably downsized the weight of the Lucas’ critique. So large scale macro models surviveandseemtoenjoystillaprosperousseason. Thereaderofthisbookmustbewarnedthatinspiteofthegreatnumberofcon- tributionstakenintoaccountbytheAuthor,hehasbeenforcedtodosomechoices asregardsthemacromodelstoconsiderwithmajoremphasis.Hischoicehasbeen an interesting one: priority goes to models constructed by institutions rather than by individual researchers. I think that this is a good decision because institutions buildtheirmodelspushedbytheneedtosolvetheirproblems,suchasanalysingthe likelyeffectsofalternativepolicydecisionsoradvisinggovernmentsaboutthesize requiredbypolicyactionstobeimplemented.Thisisanimportantperspectivefrom wheretolookatmacromodels:theyservedecisionmaking. CarloD’Adda Contents PartI TheHistoryinOutline 1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2 TheOriginsofMacroeconometricModels . . . . . . . . . . . . . . . 9 2.1 First Attempts of the Quantitative Description of National Economies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 2.2 GeneralEquilibriumModels. . . . . . . . . . . . . . . . . . . . . 9 2.3 ModelsofBusinessCycles . . . . . . . . . . . . . . . . . . . . . 10 2.4 J.M.Keynes’MacroeconomicTheory. . . . . . . . . . . . . . . . 12 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 3 MacroeconometricModelsoftheUnitedStatesandCanada . . . . . 15 3.1 FirstMacromodelsbyL.R.Klein . . . . . . . . . . . . . . . . . . 15 3.2 TheKlein-GoldbergerModel . . . . . . . . . . . . . . . . . . . . 16 3.3 TheQuarterlyMacroeconometricModels.TheBrookingsModel . 18 3.4 ModelsDevelopedatPublicandCommercialInstitutions.Models BuiltbyIndividualScholarsorGroupsofScholars . . . . . . . . . 21 3.4.1 TheWhartonModels . . . . . . . . . . . . . . . . . . . . 21 3.4.2 TheDRIModel . . . . . . . . . . . . . . . . . . . . . . . 22 3.4.3 TheMichiganModel . . . . . . . . . . . . . . . . . . . . 23 3.4.4 TheBEAModel . . . . . . . . . . . . . . . . . . . . . . . 23 3.4.5 TheMPSModel . . . . . . . . . . . . . . . . . . . . . . . 24 3.4.6 TheHickman-CoenModel . . . . . . . . . . . . . . . . . 25 3.4.7 TheFairModel . . . . . . . . . . . . . . . . . . . . . . . 25 3.4.8 TheSt.LouisModel . . . . . . . . . . . . . . . . . . . . . 26 3.4.9 TheLiu-HwaModel . . . . . . . . . . . . . . . . . . . . . 26 3.5 ModelsoftheUSEconomyinthe1990sandLater . . . . . . . . . 27 3.5.1 TheDRIModel . . . . . . . . . . . . . . . . . . . . . . . 28 3.5.2 TheQuarterlyWEFAModel . . . . . . . . . . . . . . . . 28 xiii
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