Modelling the Irish Economy : a Progress Report on the Central Bank ' S Macroeconometric

Methods of empirical economic analysis have undergone enormous changes in recent decades. The availability of improved statistics and of high-speed computers have facilitated this process, but the increasing ambition and complexity of economic policy itself have perhaps been the major stimuli. In most of the economically advanced countries and, increasingly, in developing countries also, analysis of macroeconomic policy options is carried out with the aid of large-scale econometric models. Such models are systems of simultaneous equations, hundreds of them in the larger models, designed to encapsulate the interrelationships of the main economic variables. The models, in principle anyway, will predict the impact of changes in policy, say in tax rates, on variables like the levels of output and employment. The intellectual origins of econometric modelling can be traced with rather more precision than the models themselves sometimes attain. The coincidence of the "Keynesian revolution" in macroeconomic theory and the development of national income accounting in the nineteen thirties led naturally to empirical investigations of the Keynesian system. To this day, almost all large-scale econometric models are built around the Keynesian income-expenditure framework, although not all are thorough-going Keynesian models. But Keynes was unenthusiastic about econometrics and mathematical methods in general, dismissing them as —