Large-scale macroeconometric model
Following the development of Keynesian economics, applied economics began developing forecasting models based on economic data including national income and product accounting data. In contrast with typical textbook models, these large-scale macroeconometric models used large amounts of data and based forecast on past correlations instead of theoretical relations. These models estimated the relations between different macroeconomic variables using time series analysis. These models grew to include hundreds or thousands of equations describing the evolution of hundreds or thousands of prices and quantities over time, making computers essential for their solution. While the choice of which variables to include in each equation was partly guided by economic theory (for example, including past income as a determinant of consumption, as suggested by the theory of adaptive expectations), variable inclusion was mostly determined on purely empirical grounds.
Large-scale macroeconometric models were criticized by Robert Lucas in his critique. Lucas argued that models should be based on theory, not on empirical correlations. He said that empirical correlations were sensitive to policy changes, and only a model based on theory could account for shifting policy environments. Lucas and other new classical economists were especially critical of the use of large-scale macroeconometric models to evaluate policy impacts when they were purportedly sensitive to policy changes.
Dutch economist Jan Tinbergen developed the first comprehensive national model, which he first built for the Netherlands and later applied to the United States and the United Kingdom after World War II[vague]. The first global macroeconomic model, Wharton Econometric Forecasting Associates' LINK project, was initiated by Lawrence Klein. The model was cited in 1980 when Klein, like Tinbergen before him, won the Nobel Prize. Large-scale empirical models of this type, including the Wharton model, are still in use today, especially for forecasting purposes.[1][2][3]
List of large-scale macroeconometric models
- Project LINK at Wharton
- MIT-Penn-Social Science Research Council
See also
References
- ^ Lawrence R. Klein, ed. (1991), Comparative Performance of US Econometric Models. Oxford University Press, ISBN 0195057724.
- ^ Eckstein, Otto (1983), The DRI Model of the US Economy. McGraw-Hill, DOI-10.2307/1058399, ISBN 0070189722.
- ^ Ronald Bodkin, Lawrence Klein, and Kanta Marwah (1991), A History of Macroeconometric Model Building. Edward Elgar.