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Solve the Model

SOLVE if you have read the following.

Getting Started

Before solving the model you should look over Macroeconometric Modeling: 2018. The following discussion gives details on the solution process.

Data

For the MCJ model the data are available for the period 1960:1--2016:4, although for some variables and countries the data begin later. A value of -99.0 is used for missing observations. You can examine the data (list, graph, download, etc.) beginning with 1960.1. When solving the model, you should not begin before 1972. From 1972 on the data for most countries exist.

The MCJ Model Datasets

The treatment of the MCJ model datasets is similar to the treatment of the US model datasets. Everything about the MCJ model is stored in a single dataset:

1. values on all the endogenous and exogenous variables from 1960:1 through 2016:4,
2. specification information, and
3. coefficient estimates.

The base dataset for the MCJ model is called MCJBASE with a password of MCBASE. You will name and create your own dataset, using MCJBASE as a starting point. Say you call your dataset NEW and give it the password of NEW. When you first start, NEW and MCJBASE are exactly the same, and then NEW gets modified as you make changes (change exogenous variables, coefficients, etc.). Once you are done making changes, you tell the program to solve the model. The program solves the model, and after this solution the values of the endogenous variables in NEW are the predicted values. You can examine (i.e., write to the screen, print to a printer, or download to a file) the values in MCJBASE and in any datasets you create.

In many cases one is interested in how the values of the endogenous variables in NEW compare to the original values in MCJBASE. Say that you changed German government purchases of goods (GEG) for the forecast period and are interested in how this change affected real Japanese GDP (JAY). You can simply tell the program that you want to compare JAY in NEW versus JAY in MCJBASE, and it will show you the two sets of values and the differences. (Once you do this a few times you will get the hang of it.) WARNING: You should set the errors equal to the historical errors before solving. The other option, which is not as convenient, is to use the procedure discussed in Section 2.6 in Chapter 2 of The US Model Workbook.

The program is flexible as to what you take as your base dataset. Although the first time you start the base dataset is MCJBASE, after you have created new ones, you can use any of these as your base. For example, if you created NEW and now want to makes further changes and create NEW1, you simply tell the program that you want NEW as your base dataset. Once you have created NEW1, you can either compare the values in NEW1 with those in NEW or the values in NEW1 with those in MCJBASE. You do this by simply telling the program which two datasets to use for the comparison.

If you make changes to your dataset and do not ask the program to solve it (which you are allowed to do), the values of the endogenous variables in the dataset are not consistent with your changes because they are not the solution values. Make sure you remember whether your dataset has been solved. As a general rule, you might always solve your datasets immediately after you have made your changes.

Units of the Variables

The flow variables in the MCJ Model are at quarterly rates, and you should keep this in mind in working with the model.

Years versus Quarters

Since some of the individual country models within the overall MCJ model are annual, the MCJ model must be solved in yearly (four-quarter) units. Thus, when choosing a period, you need only (and can only) choose years. The solution is, however, quarterly for the quarterly countries, and when you examine the output, you will be allowed to examine quarterly values for the quarterly countries.

Solution Errors

If you make wild changes to the exogenous variables or coefficients, the model may not solve. Because the MCJ model (unlike the US model) is not iterated until convergence---see the discussion in Chapter 1, Section 1.2, in The MCJ Model Workbook: 2018---you will not get an error message if the model does not solve. If the "solution" values do not look sensible and you are worried that the model has not solved, you can increase LIMITA and LIMITB and see if you get the same results. If the results are noticeable different, then the model has not solved. You need to be less wild with your changes and try again. As a general rule, as discussed in Chapter 2 of The US Model Workbook. you should not try to push the economy into extreme areas. Macroeconometric models are not likely to be reliable when variable values are pushed far beyond their historical ranges.

Dataset Names and Storage

The dataset names cannot be longer than EIGHT (8) characters. A common mistake is to use more than eight characters. The datasets are stored on the site's hard drive for about three months. If you want to continue to use a dataset older than three months, simply copy it to a new named dataset, and the latter will be treated as a newly created dataset.

Note on some options:

For some options you may need to hit the back space arrow on your browser one or two times once you have made any changes to get back to the main page. Doing this will not erase your changes.

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