Simulations and forecasting with macroeconometric models-An overview

Aggregate (or macro-) econometric models are systems of equations designed to represent the basic quantitative relationships among, and the behavior over time of, such major economic variables as national income, consumption, investment, employment, the price level, etc. They vary greatly in size, complexity, dynamic characteristics, and estimation methods. Increasingly, large quarterly models with non-linearities in variables are constructed and consistent estimation methods are used. The models serve the purposes of testing macroeconomic hypotheses, simulating the effects of alternative policies, and forecasting changes in the economy. The results are mixed and partly inconclusive but the potential contributions of the models are large. My assignment in this paper is to describe briefly what macroeconometric models are and how they are used. I shall try to give a general survey of the principal topics in this broad and growing area of study, in the belief that they are of sufficient interest to an audience of professionals from different but not unrelated fields.