Abstract
An econometric model is ordinarily a system of simultaneous, stochastic difference equations involving endogenous variables, exogenous variables, policy variables, and parameters. It has many numerical characteristics. This chapter discusses the existing, well-known characterizations of an econometric model and it presents two sets of techniques to describe the properties of a model. One is based on the theory of optimal control for deterministic systems and the other on the theory of optimal control for stochastic systems. The chapter presents an illustration of the techniques using the Michigan quarterly econometric model. Both general and partial equilibrium models are systems of simultaneous equations. Two types of characteristics are of interest for such systems. The first are the characteristics of individual equations, as summarized by their parameters, such as the elasticity of demand or the marginal propensity to consume. The second are the properties of the solution to the system. These are the properties of the reduced-form equations of an econometric model.
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