3.7. Economic policy modeling: objectives and instruments
In the theory of economic policy, through the linear algebra and the systems of linear equations, we can model the instruments to be adopted by the decision makers, in order to reach a set of objectives, given some exogenous macroeconomic variables. We will show the basics of these models in a certain and static environment.
Econometrics is massively used in the economic policy and macroeconomic models to estimate the parameters of the models.
Let us introduce
m linear equations,
n unknown (endogenous) variables,
k instrumental variables, and
v exogenous variables. We can formalize the following system of linear equations:
Get Elements of Numerical Mathematical Economics with Excel now with the O’Reilly learning platform.
O’Reilly members experience books, live events, courses curated by job role, and more from O’Reilly and nearly 200 top publishers.
