In this book Ray Fair expounds techniques for estimating and analyzing macroeconometric models. He takes advantage of the remarkable decrease in computational costs that has occurred since the early 1980s by implementing such sophisticated techniques as stochastic simulation. "Testing Macroeconometric Models" also incorporates the assumption of rational expectations in the estimation, solution, and testing of the models. And it presents the latest versions of Fair's models of the economies of the United States and other countries. After estimating and testing the US model, Fair analyzes its properties - including those which are relevant to economic policymakers: the optimal monetary policy instrument, the effect of a government spending reduction on the government deficit, whether monetary policy is becoming less effective over time, and the sensitivity of policy effects to the assumption of rational expectations. Ray Fair has conducted research on structural macroeconomic models for more than 20 years. With interest increasing in the area, this book should be a useful reference for macroeconomists.

Table of Contents:
Preface 1. Introduction A. Background B. The Cowles Commission Approach C. The Real Business Cycle Approach D. The New Keynesian Economics E. Looking Ahead 2. Theory A. One Country B. Background C. Household Behavior D. Firm Behavior E. Bank and Government Behavior F. The Complete Model G. Two Countries H. Background I. Notation J. Equations K. Closing the Model L. Links in the Model M. Properties of the Model N. The Use of Reaction Functions O. Further Aggregation 3. The Data, Variables, and Equations A. Transition from Theory to Empirical Specifications B. The US Model C. The Tables (Tables A1-A8) D. The Raw Data E. Variable Construction F. The Identities G. The Stochastic Equations H. The ROW Model I. The Tables (Tables B.1-B.7) J. The Raw Data K. Variable Construction L. The Identities M. The Stochastic Equations N. The Linking Equations 4. Estimating and Testing Single Equations A. Notation B. Two Stage Least Squares C. Estimation of Equations with Rational Expectations D. Two Stage Least Absolute Deviations E. Chi-Square Tests F. Stability Tests G. Tests of Age Distribution Effects 5. The Stochastic Equations of the US Model A. Introduction B. Household Expenditure and Labor Supply Equations C. Money Demand Equations D. The Main Firm Sector Equations E. Other Firm Sector Equations F. Financial Sector Equations G. The Import Equation H. Government Sector Equations I. Interest Payments Equations J. Additional Comments 6. The Stochastic Equations of the ROW Model A. Introduction B. Equation 1. M: Merchandise Imports C. Equation 2: C: Consumption D. Equation 3: 1: Fixed Investment E. Equation 4: Y: Production F. Equation 5: P Y: Price Deflator G. Equation 6: MI: Money H. Equation 7: RS: Short Term Interest Rate I. Equation 8: RB RB Long Term Interest Rate J. Equation 9 E Exchange Rate k. Equation 10 F: Forward Rate L. Equation 11 P X: Export Price Index M. Equation 12: W: Wage Rate N. Equation 13: J: Employment O. Equation 14: Li: Labor Force-Men; Equation 15: L2: Labor Force-Women P. The Trade Share Equations Q. Additional Comments 7. Estimating and Testing Complete Models A. Notation B. 3SLS and FIML C. Stochastic Simulation D. Median Unbiased Estimates E. Examining the Accuracy of Asymptotic Distributions F. VAR and AC Models for Comparison Purposes G. Comparing Predictive Accuracy H. Comparing Information in Forecasts I. Estimating Event Probabilities J. Full Information and Solution of Rational Expectations Models 8 Estimating and Testing the US Model A. Introduction B. US+ Model C. MU Estimates of the US Model D. Asymptotic Distribution Accuracy E. A Comparison of the Estimates F. Predictive Accuracy G. Comparing Information in Forecasts H. Estimating Event Probabilities I. Summary of the Test Results 9. Testing the MC Model A. Introduction B. The Size and Solution of the MC model C. The ARMC Model D. Within Sample RMSEs E. Outside Sample RMSEs 10. Analyzing Properties of Models A. Introduction B. Computing Multipliers and Their Standard Errors C. Deterministic Simulation D. Stochastic Simulation E. Sources of Economic Fluctuations F. Optimal Monetary Instruments G. Optimal Control H. Counterfactual Multiplier Experiments 11. Analyzing Properties of the US Model A. Introduction B. A General Discussion of the US Model's Properties C. Computing Multipliers and Their Standard Errors D. Fiscal Policy Variables E. A Monetary-Policy Experiment: RS Decrease F. Sensitivity of Fiscal Policy Effects to Assumptions about Monetary Policy G. Sensitivity of Fiscal Policy Effects to the Specification of the Import Equation H. Sensitivity of the Multipliers to Alternative Coefficient Estimates I. Multipliers from a Price Shock: PIM Increase J. The Deficit Response to Spending and Tax Changes K. Sources of Economic Fluctuations in the US Model L. Optimal Choice of Monetary-Policy Instruments in the US Model M. Sensitivity of Multipliers to the Rational Expectations Assumption in the US Model N. Is Monetary Policy Becoming Less Effective? O. What if the Fed had Behaved Differently in 1978 and 1990? 12. Analyzing Properties of the MC Model A. Introduction B. A General Discussion of the MC Model's Properties C. Computing Multipliers D. Common Results Across Countries Conclusion Appendix A Tables for the US Model Appendix B Tables for the ROW Model Bibliography Index