How the combined model works

Abstract

The model developed in chapters three and four differs in some important respects from the usual way of modelling firm behaviour. In order to develop an understanding of the model we trace the impact of an exogenous change through the modules described previously. The exogenous change takes place in one firm’s expectations on sectoral sales, and will bring out many important aspects of the working of the model. This analysis yields qualitative insights into model behaviour, which can be compared to and judged against the results of other models. Are the predicted results consistent with economic theory and/or empirical wisdom? And if not, can we explain the divergences from the innerent modelling concepts? This analytical phase is a first step in the process of model validation.