Draft 4 Price Determination in the Indiana Econometric Model of the U . S . Willard E . Witte

At the end of 1995 the Bureau of Economic Analysis introduced chain weighted Fisher ideal indexes as the primary measures both for real GDP and its components and for the price data associated with the output measures. In response to these changes macroeconomic modelers were forced to rework the affected sections of their models. This paper describes the accommodation of the Indiana University Econometric Model of the U.S. (Indiana EMUS) to these changes. We briefly describe the overall structure of the Indiana EMUS and outline our overall strategy for dealing with the chain-weighted data. We chose to focus the model on output data stated in terms of chained 1992 dollars, rather than the index numbers themselves. We decided to utilize implicit deflators rather than the chain weighted indexes as our price variables. The main focus of our discussion is the price determination portion of the model, and some of the issues, in that regard, we have confronted in adjusting to the new data regime. Mailing address: Center for Econometric Model Research Indiana University School of Business Bloomington, Indiana 47405 Phone/e-mail: Witte: (812) 855-2080 [email protected] Green: (812) 855-8924 [email protected] FAX: (812) 855-3736 (Attn: Witte)