The main purpose of this monograph is to give a detailed account of a contemporary, state-of-the art, macroeconometric model that is regularly used for policy advising, and for forecasting in commerce and industry.

1 - Setting the Scened.- 1 How to Use this Book.- 2 Distinguishing Features of MM.- 2.1 Overview of MM's relationship to other macro models.- (a) Size.- (b) Eclecticism.- (c) Relationship to macro and micro paradigms.- (d) Long-run properties.- (e) Specification testing.- 2.2 Main economic features.- (a) Dornbusch Model attributes.- (b) Lona-run optimizina behaviour in production.- (c) Feedback effects from assets.- 3 Principal Mechanisms in MM.- 3.1 Introduction.- 3.2 The Mundell-Fleming model.- (a) The MF model's equations.- (b) Monetary and fiscal policy under flexible exchange rates in the MF model.- 3.3 Dombusch's 1976 model.- (a) Basic assumptions.- (b) Underlying structural model.- (c) Partially reduced form.- (d) More on the underlying structural model - portfolio balance.- (e) Equilibrium exchange rate.- (f) Model consistent expectations.- (g) The effects of a monetary expansion under rational expectations.- 3.4 Insights from 1980s developments in open-economy macroeconomics.- 3.5 Synopsis of illustrative simulations with MM.- (a) Monetary expansion.- (b) The NAIRU and the neoclassical long run.- (c) Fiscal policy and public debt feedback.- (d) Private consumption and foreign debt feedback.- (e) Non-Ricardian equivalence.- 3.6 A highly stylized miniature model of balanced growth (HSM).- (a) Main assumptions underlying HSM.- (b) Production function and resource endowment.- (c) Capital accumulation and the rate of return; domestic inflation and exchange rate determination.- (d) Growth in capital stock, workforce, output and real wages.- (e) Intertemporal budget constraint.- (f) Balance of trade.- (g) Qualitative behaviour of HSM under parameter shifts.- (h) Growth rates of prices and of nominal and real magnitudes in HSM and in MM.- 3.7 Conclusions from this chapter.- 2 - Structural Form of MM.- 4 Overview of Part Two.- 4.1 Introduction.- 4.2 Notation.- 4.3 Nomenclature for equations.- 4.4 Estimation methods, specification searches and 82 hypothesis testing.- (a) General considerations.- (b) Data sources.- (c) Computing.- (d) Estim ation methods.- (e) Obtainina a preferred eauation.- (f) Diagnostic testing.- 4.5 Equation count and standard closure for simulations.- 4.6 Brief account of solution method.- 5 Wage Behaviour.- 5.1 Introduction.- 5.2 Technological change - basic ideas.- (a) Numerical example.- (b) Factor-augmenting technical change.- (c) Efficiency units.- 5.3 The role of Harrod-neutral technical progress in MM.- 5.4 Notation - Variables in wage equation SO3.- 5.5 Inflationary expectations augmented Phillips Curve.- Steady state.- 5.6 Estimated coefficients.- 6 Labour Force Participation.- 6.1 Introduction.- 6.2 Notation.- 6.3 Finding the underlying trend in the potential size of the workforce.- 6.4 Labour supply equation SO2.- 6.5 Estimated coefficients.- 6.6 Steadu state.- 6.7 Encouraged/discouraged worker effect.- 7 Private Consumption Behaviour.- 7.1 Introduction and notation.- 7.2 Equilibrium consumption - equations SO4A.- 7.3 Dynamic disequilibrium consumption equation S04.- 7.4 Steady state.- 7.5 Parameter Estimates.- 8 Behaviour of the Rental Price of Housing.- 8.1 Introduction and notation.- 8.2 Allocation of consumption into housing rental services and other.- 8.3 Dwelling rental price dynamics - within sample - equation S01.- 8.4 Steady state.- 8.5 Dwelling rental price dynamics - forecast period.- 8.6 Estimated coefficients.- 8.7 Behavioural identity 103 - consumption price index and identity I01, definition of real consumption.- 9 Production of Housing Rental Services and Investment in Dwellings.- 9.1 Introduction.- 9.2 Notation - Levels variables.- 9.3 Notation - Depreciation, interest, growth and inflation rates.- 9.4 Notation - Coefficients.- 9.5 Production of housing rental services - identity 104.- 9.6 The natural real growth rate - identities 171 and 172.- 9.7 Dwelling investment - equation SO5.- Present value calculation.- Expectations of investors in housing stock.- Steady state.- 9.8 Estimated coefficients.- Estimated risk premium.- 9.9 Some weaknesses of the approach.- 10 The Enterprise Production Block of the Business Sector.- 10.1 Introduction.- 10.2 An overview of the production structure of the enterprise economy.- 10.3 Preliminaries on the CES/ CET production technology.- Input-output separability.- 10.4 Lengths of run in MM and in the enterprise production block.- (a) Introduction.- (b) Concepts of length of run.- Short (or Keynesian) run of MM as a whole.- Medium (or classical) run of MM as a whole.- Long (or neoclassical) run of MM as a whole.- (c) The medium run of the enterprise production block.- (d) Parameter estimation of the medium-run neoclassical sub-model.- (e) The long run of the enterprise production block.- (f) Role of the medium- and long-run closures of the enterprise production block in generating the long run of MM as a whole.- 11 Business Fixed Investment.- 11.1 Introduction and notation.- 11.2 Expected present value of the net revenue stream.- 11.3 Tobin's (average) q ratio.- 11.4 Stochastic dynamic investment equation S13.- Steady state.- 11.5 Estimated coefficients.- 12 Business Sector Employment.- 12.1 Introduction and notation.- 12.2 Business sector employment equation S1O.- 12.3 Steady state.- 12.4 Estimates.- 13 Import Supply and Demand.- 13.1 Introduction and notation.- 13.2 Import supply under the small country assumption.- 13.3 Import deniand - introduction and notation.- 13.4 Equilibrium import demand equation.- 13.5 Dynamic demand equation for imports S09.- Steadty state.- 13.6 Estimates.- 13.7 Trade-weighted exchange rate index.- 14 Aggregate Export Supply.- 14.1 Introduction, notation and specification.- Steady state.- 14.2 Estimates.- 15 Disaggregation of Export Supply.- 15.1 Introduction; notation and specification for export compositional equation S06; its steady state.- 15.2 Estinates.- 15.3 Supply of 'other' exports.- 15.4 Supply of 'commodity' exports.- 15.5 Price index for aggregate exports.- 16 Overseas Demand for 'Commodity' Exports.- 16.1 Introduction and notation.- 16.2 Form of the demand equation.- 16.3 Steady state.- 16.4 Estimates.- 17 Inventory Investment in 'Commodity' Exports.- 17.1 Introduction and generic notation; form of the inventory equations.- 17.2 Inventory investment in 'commodity' exports.- (a) Notation for stochastic inventory equation SO7 and accumulation identity 107.- (b) Export 'commodity' inventory investment equation SO7.- (c) Estimates.- (d) Steady state.- 18 Demand for Non-'Commodity' Exports.- 18.1 Introduction and notation.- 18.2 Form of the denand andflexibility equations.- 18.3 Estimates.- 18.4 Steady state.- 19 Domestic Good Inventory Investment.- 19.1 Introduction and notation.- 19.2 Desired stock of non-farm inventories.- 19.3 Partial adjustnient eqqvation.- 19.4 Estimated coefficients.- 19.5 Steady state.- 20 Price Dynamics for the Domestic Good.- 20.1 Introduction, notation and specification.- Steadu state.- 20.2 Estimated coefficients.- 21 Sales of the Domestic Good; Miscellaneous Identities for Investment and Capital.- 21.1 Introduction and notation for identities 108, 109, 113 and 144.- 21.2 Demand for, and sales of, the domestic good, and miscellaneous identities.- (a) Demand determination of output of the domestic good in the veny short run.- (b) Public-private split of business fixed investment.- 22 The Government Sector.- 22.1 Introduction.- 22.2 General government sector spending.- 22.3 The public sector deficit -identities 135-138 and 145-149.- 22.4 Public sector portfolio allocation.- 22.5 Target publicdebt to GDP ratio and the tax reaction function.- (a) The tax reaction function 148.- (b) Steadu state.- (c) Calibration.- 23 Financial Markets.- 23.1 Introduction.- 2…