The use of macroeconomic models in economic policy making : The Norwegian experience
Abstract Planning in Norway has a long tradition. The use of models is an integral part of short- and medium-term economic policy administration. A large-scale input-output model, MODIS IV, is used as the short- and medium-term forecasting and planning model. The use of the model secures consistency when analysing the economy. The model is very open in the sense that important interrelations in the economy are left out. The model contains only ‘good’ relations in the Leif Johansen sense of the word. Smaller aggregate and more closed versions of the model are used for analysing policy alternatives. These models contain both ‘good’ and ‘bad’ relations. The use of macroeconomic models is an important aid for proposals regarding economic policy in the Ministry of Finance. Because the whole ministry (with expert help from other ministries) takes an active part in the model work, MODIS IV serves as the centralizing mechanism. It helps to make economists from many ministries go around the same centre, speak the same ‘language’ and organize all relevant information and judgements in a consistent way. Experience shows that ‘numbers discipline’ and force the different arguments on to a higher level of precision.
The Use of Impact Tables in Policy Applications of Input-Output Models
MODIS IV is the fourth generation in a series of macro-economic models constructed and used by the Central Bureau of Statistics of Norway. Like its predecessors, MODIS IV combines a disaggregated input-output framework with a number of additional relations and auxiliary assumptions.
The forecasting potential of complex models
The nature and use of “complex” models for forecasting and policy simulation are analyzed on theoretical and empirical-performance grounds. The analysis suggests that while the accuracy of complex models in forecasting trends in such fields as economic and energy is, and will remain, undistinguished, complex models' special virtues of preserving counter-intuitive results and representing subsystem interdepedence could be used to better advantage than current practice permits. Suggestions for such improvements, through more diversified model structures, micro-process models in addition to the typical macro models, a mix of mechanically- and judgmentally-operated models, and the modeling of policy response, are reviewed.