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Abstract
The paper describes the Liverpool Model, a rational expectations model of the UK economy used for forecasting since March 1980. The model is of the ‘new classical’ type, in that all markets clear; in the labour market, there is a union sector with one-year nominal wage contracts but the non-union sector clears excess demands. Equilibrium (or ‘natural rate’) values of output, employment, real wages, etc are endogenously determined. In- and out-of-sample errors, a full set of simulations, and a complete listing are included. The interim experience of the model as a test bed for rational expectations methods is ‘far from discouraging’.
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