Abstract
The initial goal of this paper is to develop the standard Keynes’ analytical system into a dynamic macro-econometric model, which is then applied to the analysis of macroeconomic indicators for the U.S. from 1950s to 1980s—a period marked by strong volatility of inflation, exchange rates and commodity prices. Based on the results obtained and, in particular, on the model’s structure and exogenous variables, it is possible to single out the main factors that explain the macro-trends observed in the American economy. Further, a second and more important goal is to evaluate if a simple macro-dynamic model can be a relevant tool in empirical analysis of macroeconomic developments. The results obtained indicate that, although the elements of the Keynesian system are most often used in a purely theoretical perspective, a macro-econometric model based on those elements can be successfully used in reproducing overall macroeconomic variables in a certain period—and the determinants of those macro-trends can be traced to the model’s exogenous variables.
Highlights
The initial goal of this paper is to develop the standard Keynes’ analytical system into a dynamic macro-econometric model, which is applied to the analysis of macroeconomic indicators for the U.S from 1950s to 1980s—a period marked by strong volatility of inflation, exchange rates and commodity prices
The results obtained indicate that, the elements of the Keynesian system are most often used in a purely theoretical perspective, a macro-econometric model based on those elements can be successfully used in reproducing overall macroeconomic variables in a certain period—and the determinants of those macro-trends can be traced to the model’s exogenous variables
The analyses in the previous Sections indicate that simple structural macro-econometric models—even very small ones, as the model examined here— can be valuable tools in the effort to understand and explain main macroeconomic tendencies and variables, as well as in exercises aimed at forecasting future developments
Summary
One important consequence of the ways “mainstream macroeconomics”—the meaning of this expression, though, is not free from controversy—has evolved in the last few decades is that models devised to understand and analyze the behavior of the overall economy and to make relevant conclusions about economic. One of the pioneers in the field of structural macro-modeling, developed a six-equation dynamic macro-model based on Kalecky’s analytical system, which became known as Klein Model I [1]2 For this early model, data series were constructed with annual data for the US from 1920 to 1941—a period that includes the most dramatic economic and financial events of the last century. Following the footsteps of Klein Model I, this paper’s initial goal is to develop a structural macro-econometric model based on Keynes’ analytical system with barely a few simple equations, and evaluate its performance in reproducing major macroeconomic trends in a significant period in American economic history.
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