The Arab Planning Institute (API) organized a Training
Program during the period 24-28/04/2016 on "The use of Macro-Economic models in Economic Policy-Making" for the benefit of Phd Students of the Economics
Department, Algeriers 3 University, Algeria. The training program aimed at
enabling participants to undestand the various modelling strategies used in
develeping macro models and how to use such models in the process of policy
evaluations and forecasting. The first day of the program was devoted to undestand
such modes and how they are formulated, specified and estimated or calibrated.
Afterwards the program went into details on how to build traditional structural
macromodels show how to express them into a system of simultaneous equations,
and how to identify and estimate the parameters of these models and then usen
in practice.
The second and third
day of the program was devoted to the latest developments in macromodelling
activity as a result of the severe criticism that were formulated against
traditional models. Such criticism led
to the development of alternative competing models. The first ctiticism were
formulated by economists from the pretegious London School of Economics (LSE)
who argued that structural models were not able to represent the data
generation process (DGP) because they ignonred the complex stochastic structure
of data and the inherent dynamics of the DGP. In order to reduce this
mis-specification they proposed a model reduction strategy in order to arrive a
parsimounious models that well describe the DGP.
The thirs day of the program was deveoted to the criticism of
the idetification methods of model parameters which was rgarded as incredible. Critics proposed instead to model the data
using Vector Auto Regresive models (VAR) models which do not need exclusion
restrictions to identify their parameters. This class of models became a tool
of modelling shocks to the economy within a class of models known as Real
Business Cycle (RBC) models. The fourth
day of the program was deveoted to the critique regarding the formulation of
expectations in the traditional models. Critics argued that structral models
were not apt to evaluate policy because they assume that expectations were
formulated adaptiveley and assumes paratems as fixede even in the case of
policy regime change. They argued that economic agents form their expectations
rationally, and that model prameters assossiated with
policy shifts with policy regime. They proposed a class of models know the
Dynamic Stochastic General Equilibrium (DSGE) which were based on intertemporal
optimization and consistent with rational expectations. The last day of the
program was devoted to a lab workshop where a small prototype model was
estimated and used for policy analysis.