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The Measurement of Policy Effects in a Non-Causal Model: An Application to Economic Policy in the UK, 1974-79

Author

Listed:
  • Artis, Michael J
  • Bladen-Hovell, Robin
  • Ma, Yue

Abstract

There is a well-established methodology for measuring the effects of economic policy in a model that is `causal' or backward-looking. In this paper a complementary methodology is described for the case in which the model is `non-causal' or forward-looking. The methodology is then applied to an econometric model of the British economy, the National Institute model version 11; in this version expectational variables appear in several key equations (both for quantities and for prices) and the model may be solved in forward-looking or in backward-looking mode. The policy period for which the exercise is conducted is 1974-9, the term of office of the last Labour administrations (under the premierships of Wilson and Callaghan), and a period of considerable economic stress. The results obtained for the effects of policy when the model is solved in forward-looking mode are compared with those obtained when expectations are assumed to be formed adaptively.

Suggested Citation

  • Artis, Michael J & Bladen-Hovell, Robin & Ma, Yue, 1991. "The Measurement of Policy Effects in a Non-Causal Model: An Application to Economic Policy in the UK, 1974-79," CEPR Discussion Papers 526, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:526
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