Abstract
MM is a 100-equation, quarterly, macroeconometric model of the Australian economy designed for policy analysis and forecasting. This chapter highlights the model’s distinctive features as background for the remainder of this book.
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Some of what follows in this section draws substantially on Parsell, Powell and Wilcoxen (1989).
Note that such perfect foresight (or rational expectations) does not imply that agents correctly forecast actual outcomes in the real world, only that they make efficient use of the information available to them in forming their expectations.
For example, consumption theories based on the permanent income hypothesis, or investment models driven by the marginal variant of Tobin’s q.
See Intriligator (1978), pp. 441–444, for a brief description of the Wharton model, and for relevant citations.
The last of the NIF series, NIF88, is intermediate between the older Wharton-style models and the newer generation as exemplified by MM and TRYM. for a description of NIF88, see Simes (1988) and Simes et al. (1988), and the series of working papers cited therein.
McKibbin and Sachs (1989, 1991), McKibbin (1988), McKibbin and Elliot (1989), McKibbin and Siegloff (1988a & b).
See Taplin, Jilek, Antioch, Johnson, Parameswaran and Louis (1993a&b) and the papers cited therein.
See, e.g., Deleau, le Van and Malgrange (1989), Murphy (1992b) and Wallis and Whitley (1987). Murphy (1992b) gives a very detailed account of the steady-state version of MM.
With constant returns to scale (a maintained assumption), the profit-maximizing scale of output is indeterminate for the business sector’s representative agent. Thus more accurately put, the agents of the business sector minimize costs, with a sector-wide constraint on the level of employment determining the scale of output. This results in the business sector as a whole maximizing profits in the long-run but achieving zero pure profits (as in any conventional competitive model of production).
Some care is needed with concepts of length of run; in particular, the three lengths of run of the model as a whole discussed in this chapter need in principle to be distinguished from the three lengths of run of the enterprise production block discussed below in Chapter 10. See sub-section 10.4(b) Ipp.156–81.
A foreign-debt dependent risk premium could be introduced as a second feedback effect from the stock of foreign debt. A high level of foreign debt may give rise to investors requiring a premium for holding domestic rather than foreign securities which would induce a depreciation of the exchange rate, thus reducing the current account deficit, and helping to stabilize foreign debt.
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© 1995 Springer-Verlag Berlin Heidelberg
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Powell, A.A., Murphy, C.W. (1995). Distinguishing Features of MM. In: Inside a Modern Macroeconometric Model. Lecture Notes in Economics and Mathematical Systems, vol 428. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-662-00771-6_2
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DOI: https://doi.org/10.1007/978-3-662-00771-6_2
Publisher Name: Springer, Berlin, Heidelberg
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