Testing macroeconometric models

Article Abstract:

Economists paid a great deal of attention to the development of structural macroeconomic models between the late 1930s and the 1960s. The Brookings model provided economists with information, but its use had diminished by 1972. The popularity of the 'Cowles Commission' approach to modeling declined as a result of the commercialization of macroeconometric models and Robert Lucas' conclusion that models could not be applied to policymaking. Macroeconomists disagree about the structure of the economy because macroeconometric models and equations are difficult to test.

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The use of the new macroeconometrics for policy formulation

Article Abstract:

Macroeconomists between the early 1980s and early 1990s have tried to develop a new kind of model that can be applied to policymaking. This type of model could help determine policies related to deficit reduction. This rational-expectations approach offers an alternative to the Keynesian approach, but more research in areas such as forecasting and credibility is needed. New-Keynesian models and real-business-cycle models have evolved from the rational-expectations model.

Policy sciences

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Does the NAIRU have the right dynamics?

Article Abstract:

The dynamics of the non-accelerating inflation rate of unemployment (NAIRU) are flawed. The NAIRU view emphasizes the existence of a value of the unemployment rate below which the price level forever accelerates and above which the price level forever decelerates. The relationship between the price level and the unemployment rate is nonlinear at low values of the unemployment rate. The price process is better specified by not imposing two NAIRU restrictions on it.

Analysis, Inflation (Finance), Unemployment, Inflation (Economics)

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