Economy-Wide Modeling: Past, Present and Future

: The need for an empirical macroeconometric model with an appropriate theoretical basis has markedly grown in recent years. This is largely because under the new economic policy regime, introduced two decades back, different segments of the economy have increasingly been driven by the market forces and are more strongly linked with each other. In particular, the domestic economy has fairly and strongly got connected with the international markets through trade and capital flows. A clear understanding of how the economy functions and how it is likely to perform over the ensuing years has become necessary for the policy makers, drivers of the corporate sector and all major stakeholders. This paper intends to review how such models have been designed so far and how we may benefit from the past experience to formulate new models relevant for the current situation. The work on macroeconometric modeling must involve a fruitful interaction between those in charge of data collection, those responsible for policy formulation and academic researchers. It is necessary to ensure that the resulting models are reliable, have a proper policy focus and are analytically sound. Such modeling effort has to be an ongoing activity because the models in question need to be regularly updated and revised to reflect fresh information and new economic issues that come up every now and then. Such models must be regularly used for forecasting the ensuing trends and in analyzing important policy initiatives.