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"An Analysis of the Accuracy of Four Macroeconometric
Journal of Political Economy, August 1979, 701-718.
pdf file (843KB).
The primary purpose of this paper is to compare the predictive accuracy
of four models: (1) Sargent's classical macroeconometric model, (2) Sims's
six-equation unconstrained vector autoregession model, (3) a "naive"
eighth-order autoregressive model, and (4) my model. A recent method that
I have proposed for estimating the predictive accuracy of a model, which
takes account of the four main sources of uncertainty of a forecast, is used
for the comparisons. The results indicate that Sargent's and Sims's models
are the same as or less accurate that the naive model, depending on the
variable, and that my model is more accurate for real GNP, the GNP deflator,
and the unemployment rate and less accurate for the money supply and the
wage rate than the naive model. A secondary purpose of the paper is to
point out some econometric mistakes that Sargent made in his empirical work
and to propose an alternative technique that can be used to estimate a
rational expectations model like his.
The method presented in 1980#1 is used to compare
four models in this paper. In addition, a technique is proposed for
estimating Sargent's rational expectations model. The discussion of
Sargent's model in Chapter 5, Section 5.4, in 1984#2
is based on this paper.
Similarly, the comparison in Chapter 8, Section 8.5.4, in
1984#2 is based on this paper.
Sargent's model can be analyzed in the Fair-Parke program.
This is explained in Chapter 15, Section 15.4, of the FP User's Guide.