Eilev S. Jansen

Model Specification and Inflation Forecast Uncertainty

Three classes of inflation models are discussed: Standard Phillips curves, New Keynesian Phillips curves and Incomplete Competition models. Their relative merits in explaining and forecasting inflation are investigated theoretically and empirically. We establish that Standard Phillips-curve forecasts are robust to types of structural breaks that harm the Incomplete Competion model forecasts, but exaggerate forecast uncertainty in periods with no breaks. As the potential biases in after-break forecast errors for the Incomplete Competition model can be remedied by intercept corrections, it offers the best prospect of successful inflation forecasting.

Statistical issues in macroeconomic modelling.

The paper describes the influx of mathematical statistics in economics. It focuses on an approach to macroeconometric modelling which is based on fundamental statistical concepts like the joint distribution function of all observable variables for the whole sample period. The methodology relies on valid conditioning and marginalization of this function in order to arrive at tractable subsystems, which can be analysed with statistical methods. Two case studies—the modelling of the household sector and of wages and prices in the Norges Bank RIMINI model—highlight this.

The Interplay Between Sectoral Models Based on Micro Data and Models for the National Economy

Publisher Summary This chapter focuses on how sectoral models based on putty-clay production functions can interact with models for the national economy. It also discusses the concepts of industry production function and the frontier production function. The ex-ante production function at the micro level is a neo-classical production function with continuous substitution possibilities. It summarizes the relevant technological knowledge available at the moment of investment, and the choice of techniques related to this function. However, in ex-post, the production possibilities embodied in each unit follows a limitational law. The change over time of a sectors production capacity is composed of two factors: creation of new capacity and scrapping of existing capacity. The scrapping criterion may be the quasi-rent criterion, that is, capacity with negative quasi-rent according to the prices generated by the macro model that is scrapped within each time period. In the creation of new capacity, the notion of individual production units disappear from the model at future points of time.