"This book gives an excellent insight into the process of forming a high-quality,
real-world macro-model then evaluating and using it. This is an important topic and makes
this an important book" -Clive W.J. Granger, Nobel Laureate
Description
- Provides readers with experience in practical, real-world macroeconomic modelling.
- Covers the last 40 years of international research explaining inflation in a small open
economy.
- Comprehensive, covering inflation modelling, inflation targeting, monetary policy rules,
and forecasting in one book.
- Emphasizes that inflation is a many-faceted phenomenon, not one that can be explained by
one or two explanatory variables.
Macroeconometric models, in many ways the flagships of the economist's profession in
the 1960s, came under increasing attack from both theoretical economist and practitioners
in the late 1970s. Critics referred to their lack of microeconomic theoretical
foundations, ad hoc models of expectations, lack of identification, neglect of dynamics
and non-stationarity, and poor forecasting properties. By the start of the 1990s, the
status of macroeconometric models had declined markedly, and had fallen completely out of,
and with, academic economics. Nevertheless, unlike the dinosaurs to which they often have
been likened, macroeconometric models have never completely disappeared from the scene.
This book describes how and why the discipline of macroeconometric modelling continues
to play a role for economic policymaking by adapting to changing demands, in response, for
instance, to new policy regimes like inflation targeting. Model builders have adopted new
insights from economic theory and taken advantage of the methodological and conceptual
advances within time series econometrics over the last twenty years.
The modelling of wages and prices takes a central part in the book as the authors
interpret and evaluate the last forty years of international research experience in the
light of the Norwegian 'main course' model of inflation in a small open economy. The
preferred model is a dynamic model of incomplete competition, which is evaluated against
alternatives as diverse as the Phillips curve, Nickell-Layard wage curves, the New
Keynesian Phillips curve, and monetary inflation models on data from the Euro area, the
UK, and Norway.
The wage price core model is built into a small econometric model for Norway to analyse
the transmission mechanism and to evaluate monetary policy rules. The final chapter
explores the main sources of forecast failure likely to occur in a practical modelling
situation, using the large-scale nodel RIMINI and the inflation models of earlier chapters
as case studies.
Readership: Students and researchers in econometrics and advanced macroeconomics.
Practitioners making forecasts and using models for policy analysis in governmental
agencies and in central banks.
Table of Contents
1 Introduction
2 Methodological issues of large scale macromodels
3 The Norwegian main-course model
4 The Phillips curve
5 Wage bargaining and price setting
6 Wage-price dynamics
7 The New Keynesian Phillips Curve
8 Money and inflation
9 Transmission channels and model properties
10 Evaluation of monetary policy rules
11 Forecasting using econometric models
12 Appendices
Hardback
360 pages