Interindustry Econometric Model

Originally built in 1977, the Washington Projection and Simulation Model (WPSM) is a regional interindustry econometric model designed for forecasting and impact analysis. While remaining faithful to the economic base theory of regional growth, WPSM attempts to satisfy Tiebout’s desire for a model grounded in a “general theory of income determination.” Presented here is the fourth version of WPSM. It predicts 151 variables, including Gross State Product, personal consumption expenditures, residential and nonresidential investment, state and local government expenditures, exports (including federal government expenditures), imports, industrial output, employment, labor income, personal income, the unemployment rate, resident population, and the consumer price index. More than 40 studies have been conducted with WPSM. The majority of them have involved analyses of the key contributors to Washington’s economic base, such as Boeing, Microsoft, the forest products industry, the aluminum industry, and international trade. WPSM has been replicated in other places, most notably in Hawaii, where it is still in use four decades later, and the Chicago Region. This chapter describes the formulation of WPSM, analyzes the accuracy of the long-range forecasts prepared with the original version of the model, and evaluates the model’s simulation properties.