Behaviour of the Liverpool model with weight given to alternative public forecasts

Abstract

From an a priori consideration of the marginal costs and benefits, public forecasts appear to be strong candidates to condition the expectation of agents. Our purpose is to examine the implications for the forecasting and simulation properties of the Liverpool macroeconomic model if expectations in the behavioural equations of the model are replaced by a simple average of the Liverpool and Cambridge Economic Policy Groups forecasts. The exercise produces large differences in the forecasts and simulations of the Liverpool model.