Parameter Estimation for a Nonlinear Macroeconometric Model of the United States Based on Optimal Corporate Pricing and Production

Abstract

A low-order macroeconometric model of the United States is derived by using a theoretical basis for its structure. Analysis of historical economic data is used to establish the dynamic aspects of the relationships and to estimate model parameter values. Wealth is modelled as the accumulation of production with losses due to depreciation. Demand is seen as proportional to real wealth and affected by real interest rate and inflation. Prices are confirmed to be proportional to money supply and affected by changes in the monetary exchange rate. Interest rate tracks inflation rate and is affected by changes in the growth rate of money supply. It is recognized that the long term growth rate of the economy tends to equal the real interest rate. The inherently nonlinear macroeconometric model requires repeated applications of different parameter estimation techniques. The model responses are compared to time histories of actual economic variables