Dynamic Macroeconometric Models

General Aspects

Some Goals of Macroeconomic Modeling In this chapter and in the following ones, we are mainly interested in the use of time-series techniques in the domain of macroeconomics. The available data refer to variables which can be generally classified as quantities (production, consumption, investment, imports, money supply, total employment, unsatisfied employment demand, etc.) and as prices (prices of consumption goods, of investment goods, foreign prices, wages, interest rates, etc.). These quantities and prices are the result of aggregation procedures with respect to economic agents, goods, and time. For example, the term “price” should be interpreted as a price index relative to a certain period and to a certain category of goods. Macroeconomics studies how certain variables are related to each other.

In a macroeconomic study, we generally start by choosing the appropriate variables. These are then divided into two groups. Some are specific to the phenomenon under study, and the knowledge of their values at regular intervals allows one to follow its evolution. These are called endogenous. To consider only these endogenous variables translates into just a descriptive study and not an interpretive one. In order to be able to have some explanation for the phenomenon, we need to take into consideration other variables as well which can possibly have an influence on the endogenous variables, the values of which are fixed outside the phenomenon. These variables are called exogenous (a more precise definition will be given in section 10.3). The phenomenon and its explanation are summarized in a macroeconometric model.