Reduced Forms of Rational Expectations Models

5. MULTIVARIATE MODELS

1. Dynamic macroeconometric models

Simulations of economic policies are generally performed using large-scale computerized macroeconomic models. Among the variables appearing in the model, some (the controls) are selected and their values are modified. Then the effects of these shocks on the other variables are evaluated. These effects depend on the amplitude of the initial shocks, on the lag between the date of the shock and the time index of the variable of interest and, of course, on the dynamic specification of the model.

These macroeconomic models are generally simultaneous equation models with a large number of equations and variables. The dynamics is often introduced by means of lagged endogenous and/or exogenous ...