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DRI·WEFA’s Macroeconomic Models

October, 2002


Econometric models built in the 1950s and 1960s were largely Keynesian income-expenditure systems that assumed a closed domestic economy. High computation costs during estimation and manipulation, along with the underdeveloped state of macroeconomic theory, limited the size of the models and the richness of the linkages of spending to financial conditions, inflation, and international developments. Since that time, however, computer costs have fallen spectacularly; theory has also benefited from four decades of postwar data observation and from the intellectual attention of many eminent economists.

An Econometric Dynamic Equilibrium Growth Model

The DRI-WEFA Model strives to incorporates the best insights of many theoretical approaches to the business cycle: Keynesian, neoclassical, monetarist, supply-side, and rational expectations. In addition, the DRI-WEFA Model embodies the major properties of the long-term growth models presented by James Tobin, Robert Solow, Edmund Phelps, and others. This structure guarantees that short-run cyclical developments will converge to robust long-run equilibria.

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