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


  • Wren-Lewis, Simon, et al


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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    Cited by:

    1. 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.
    2. repec:dgr:rugsom:02c56 is not listed on IDEAS
    3. Simon Wren-Lewis, 2016. "Unravelling the New Classical Counter Revolution," Review of Keynesian Economics, Edward Elgar Publishing, vol. 4(1), pages 20-35, January.
    4. 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.
    5. Anthony Garratt & Kevin Lee & Mohammad Hashem Pesaran & Yongcheol Shin, 1998. "A structural cointegrating VAR approach to macroeconometric modelling," Edinburgh School of Economics Discussion Paper Series 8, Edinburgh School of Economics, University of Edinburgh.
    6. Keshab Bhattarai, 2016. "Growth and Income Distributions in Four EU Economies," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 22(3), pages 263-277, August.
    7. Keshab Raj BHATTARAI, 2009. "Dynamic Multi-Household General Economic Models for Policy Simulations: France, Germany, Spain and UK," EcoMod2009 21500014, EcoMod.
    8. 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, November.
    9. 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).

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