Use Of National Accounts For A Short‐Term Econometric Model: 1954–1966

A quarterly macro‐econometric model of Japan's postwar economy has been constructed for the period 1954–1965 FY on the basis of standardized quarterly national income accounts. The model is designed for facilitating short‐term economic forecasting and formulating adequate fiscal and monetary policy. Longer‐term factors such as labor mobility, technical progress, etc., were also considered in the model. The model consists of fifty‐three equations related to most of the macroeconomic variables in both money and real terms, and the equations were estimated in principle by the limited information maximum likelihood method. Principal exogenous variables related to policy instruments are government expenditures including transfers, parameters of tax functions, interest rate, and prices and fares controlled by the government, etc. In formulating the model, non‐linear specifications were used whenever found necessary. Results of our testing on its predictive capability indicated fairly satisfactory performances for our observation period and also for 1966 FY. Multipliers related to fiscal and monetary policy were also obtained, indicating the dynamic characteristics of the Japanese economy, in particular, represented by dynamic business fixed investment, as compared with corresponding multipliers of the U.S. models. Although the model is exploratory and to serve as a core for a more disaggregated “Master Model,” the usefulness of the model for our purposes and the workability of our quarterly national accounts data for model‐building have been recognized. The quarterly data, however, still remain to be improved especially in regard to consistency between income and expenditure and integration with flow‐of‐funds accounts.