Consistent price determination of income and production: A singular equation system applied to the MPS model

Abstract

In this article we present a general methodology that can be used to estimate a singular equation system of relative prices for a large disaggregated macroeconometric model (MPS). The accounts consistency requirements and the necessity to utilize distributed lag restrictions and to impose a serial correlation structure on the estimated model make these sum constraints rather cumbersome. Estimates of the MPS model and multiplier analysis illustrate the use of these constraints on a large forecasting model as well as the feasibility of the technique.