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Stochastic simulations on the Romanian macroeconomic model

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  • Dobrescu, Emilian
  • Pauna, Bianca

Abstract

The paper presents the methodology for attaching probability distribution or intervals of variation to point forecasts. This methodology might prove significant for countries that have suffered deep structural transformations in their not very distant past. For these models, stability is more difficult to be achieved, because some coefficients lack accuracy of estimation, and this is not visible until intervals of variation are constructed. Forecasts consist traditionally in sets of values of key economic indicators, with no information regarding the associated uncertainty. Our assessment is that policy makers would benefit if they would be given probabilities as well as values, and the methodology of stochastic simulation, presented in this paper quantifies the uncertainty of the coefficients of the behavioural equations, on a reduced version of the Romanian Market Economy Model. In our paper we present the advantages of applying stochastic simulation on macromodels of emerging market economies, both from a cognitive and practical perspective. On one hand, researchers have an instrument to check the operational properties of a given model, and subsequently improve them, and, on the other hand, policy makers by incorporating the uncertainty into the decisional mechanism, have additional information which would help them in efficiently defining and promoting their targets.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 35723.

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Date of creation: 05 Dec 2007
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Handle: RePEc:pra:mprapa:35723

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Keywords: macromodel; uncertainty; bootstrap; simulation;

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References

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  1. Dobrescu, Emilian, 1996. "Macromodels of the Romanian transition Economy," MPRA Paper 35810, University Library of Munich, Germany.
  2. Fair, Ray C, 1980. "Estimating the Expected Predictive Accuracy of Econometric Models," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 21(2), pages 355-78, June.
  3. Boehm, Ernst A., 1993. "Business cycles: Theory, history, indicators, and forecasting : Victor Zarnowitz, 1992, (University of Chicago Press, Chicago), xvii + 593 pp., $70.00, ISBN 0-226-97890-7," International Journal of Forecasting, Elsevier, Elsevier, vol. 9(2), pages 275-277, August.
  4. Dobrescu, Emilian, 2005. "Macromodel Estimations For The Updated 2004 Version Of The Romanian Pre-Accession Economic Programme - Working Paper," Journal for Economic Forecasting, Institute for Economic Forecasting, Institute for Economic Forecasting, vol. 2(1), pages 5-29.
  5. O'Brien, Anthony Patrick, 1993. "Business Cycles: Theory, History, Indicators, and Forecasting. By Victor Zarnowitz. Chicago: University of Chicago Press, 1992. Pp. xvii, 593. $70.00," The Journal of Economic History, Cambridge University Press, Cambridge University Press, vol. 53(01), pages 211-213, March.
  6. Franz, Wolfgang & Göggelmann, Klaus & Schellhorn, Martin & Winker, Peter, 1998. "Quasi - Monte Carlo Methods in Stochastic Simulations," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 98-03, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
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Cited by:
  1. Dobrescu, Emilian, 2010. "Macromodel Simulations for the Romanian Economy," Journal for Economic Forecasting, Institute for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 7-28, July.

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