Macroeconomic Modelling

By Joseph Mverecha
2003

The introduction emphasizes the urgent need for model based macroeconomic policy formulation and implementation. This approach is necessitated by a number of factors, the most notable of which are:
i) The need to understand the underlying structure of the economy
ii) The changing global and domestic economic conditions
iii) Increasing global economic and financial integration
iv) Technological progress and information technology impacting on economic performance
v) Appropriately designed models provide an internally consistent framework for quantifying and evaluating various policy measures
vi) Model based policy formulation avoids the ad-hocery , overshooting and conjectures associated with rile thumb based policies
vii) Models greatly assist monetary policy by highlighting key transmission mechanisms and the time varying lags associated with monetary policy.