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From Walras to NIMOD: some reflections on the equilibrium properties of macroeconomic models

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  • Andrew Britton

Abstract

Does the economy return to some well‐defined equilibrium position irrespective of its starting point? For example, will a recession be followed by a spontaneous economic recovery? These are fundamental issues in macroeconomics and hence in the design of macroeconomic models. This paper considers what equilibrium means in this context and its relationship to various schools of economic theory. The starting point is the general equilibrium model of Walras, and the assumptions required to build a macroeconomic model on that foundation. This is compared with the theory that underlies the structure of an estimated macroeconomic model, for example the NIESR's domestic model, NIMOD. The differences result mainly from the assumption of imperfect competition. It is argued that issues of aggregation across a multitude of individual firms and households are usually given insufficient attention, and that the notion of the 'representative individual' can easily mislead. There is also some discussion of econometric issues, especially identification and use of cointegration tests. Contact NIESR if copy required

Suggested Citation

  • Andrew Britton, 1992. "From Walras to NIMOD: some reflections on the equilibrium properties of macroeconomic models," National Institute of Economic and Social Research (NIESR) Discussion Papers 24, National Institute of Economic and Social Research.
    • Handle: RePEc:nsr:niesrd:24
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