What are the models and why use them over commercial models? |
The US Model The United States model was developed by Ray Fair in 1974-1976, and it has been used since then for research, forecasting, policy analysis, and teaching. It has been available for use on personal computers since 1983 and was the first such model to be so. (And it was first on the Web!) The current version contains 25 stochastic equations and about 100 identities. The data base begins in the first quarter of 1952. The basic estimation technique is two-stage least squares. The model accounts for all flow-of-fund and balance-sheet constraints, which makes it useful for considering various monetary policy options. A complete description of the model is in Macroeconometric Modeling: 2018. Each quarter the data base is updated, the model is reestimated, and a new forecast is usually made (although not for the pandemic updates April 29, 2020, July 30, 2020, October 29, 2020, and January 28, 2021). The forecasts are not subjectively adjusted (no constant adjustments). The current estimation period is 1954.1-2021.1, and the current forecast period is 2021.2--2025.4. The main strength of the US model is that it is probably the best approximation of the U.S. economy available. It has been extensively tested and analyzed, and unlike commercial models, it does not have to be subjectively adjusted to produce accurate forecasts. You can have more confidence using the model than using commercial models that the results are actually telling you something about how the macroeconomy works. Commercial models are not even consistently estimated, even though consistent techniques have been available for over 50 years, whereas the US model has been consistently estimated from its beginning. The past forecasting record of the model is updated each quarter, so the user always has a complete record of how the model has done. The first forecast is dated September 23, 1983. See The Forecasting Record of the US Model. The MC Model
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