On Evaluating the Importance of Non-Linearity in Large Macroeconometric Models
Most model builders continue to treat their models as deterministic when forecasting, despite the fact that these models are composed of equations which are stochastic in nature. Deterministic solution methods ignore the stochastic information on the model structure and in addition produce biased forecasts in non-linear models. It is therefore important to investigate whether a given model is significantly non-linear. After commenting on the poor simulation methodology employed in a number of earlier studies, we find significant non-linear effects in two large macro models of the United Kingdom economy. This is confirmed by two tests that we propose for assessing the importance of non-linearity in such models.
|Date of creation:||Dec 1985|
|Date of revision:|
|Contact details of provider:|| Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.|
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:86. See general information about how to correct material in RePEc.
If references are entirely missing, you can add them using this form.