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The Macroeconomic Effects of Fiscal Policy: Linking an Econometric Model with Theory

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  • Wren-Lewis, Simon, et al

Abstract

In this paper, the authors outline a method, termed 'theoretical reconstruction,' which allows the system properties of any econometric macromodel to be related to a simpler theoretical model. First, elements of the econometric model which involve significant additional theoretical complexity compared to the theory model are removed. This process continues until the properties of the 'deconstructed' econometric model match those of the reference theory. Second, the econometric model is gradually reconstructed, noting at each point how each element of additional complexity influences the model properties. The technique is illustrated using fiscal policy changes and the U.K. econometric model COMPACT. Coauthors are Julia Darby, Jonathan Ireland, and Ottavio Ricchi. Copyright 1996 by Royal Economic Society.

Suggested Citation

  • Wren-Lewis, Simon, et al, 1996. "The Macroeconomic Effects of Fiscal Policy: Linking an Econometric Model with Theory," Economic Journal, Royal Economic Society, vol. 106(436), pages 543-559, May.
  • Handle: RePEc:ecj:econjl:v:106:y:1996:i:436:p:543-59
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    Citations

    Blog mentions

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    Citations

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    Cited by:

    1. S. Sgherri, 1999. "Monetary transmission channels, monetary regimes and consumption behaviour," WO Research Memoranda (discontinued) 602, Netherlands Central Bank, Research Department.
    2. Darby, Julia & Ireland, Jonathan & Leith, Campbell & Wren-Lewis, Simon, 1998. "COMPACT: a rational expectations, intertemporal model of the United Kingdom economy," Economic Modelling, Elsevier, vol. 16(1), pages 1-52, January.
    3. Garratt, Anthony & Lee, Kevin C & Pesaran, M. Hashem & Shin, Yongcheol, 1998. "A Structural Cointegrating VAR Approach to Macroeconometric Modelling," Cambridge Working Papers in Economics 9823, Faculty of Economics, University of Cambridge.
    4. repec:dgr:rugsom:02c56 is not listed on IDEAS
    5. Marcus R. Keogh-Brown & Simon Wren-Lewis & W. John Edmunds & Philippe Beutels & Richard D. Smith, 2010. "The possible macroeconomic impact on the UK of an influenza pandemic," Health Economics, John Wiley & Sons, Ltd., vol. 19(11), pages 1345-1360.
    6. Simon Wren-Lewis, 2016. "Unravelling the New Classical Counter Revolution," Review of Keynesian Economics, Edward Elgar Publishing, vol. 4(1), pages 20-35, January.
    7. Jacobs, Jan & Wallis, Kenneth F., 2002. "Comparing SVARs and SEMs: more shocking stories," Research Report 02C56, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    8. Steve Cook, 2008. "Cross-data-vintage Encompassing," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 70(s1), pages 849-865, December.

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