A History of Computation in Macroeconometric Models

Ronald G. Bodkin
Department of Economics, University of Ottawa
RGBodkin@praxis.cc.uottawa.ca

Abstract

This paper examines the history of calculation in macroeconometric models, from Tinbergen's elaborate hand calculations to develop his League of Nations 1939 model of the United States economy, through to the modern era. In particular, it can be argued that the micro computer (the personal computer) has revolutionized computation in the past decade or so. On the other hand, the supercomputer has permitted some powerful computations that were not possible even twenty years ago (for example, in the linking of a number of country macroeconometric models to form a system linked by trade and exchange rate relationships, as in Project LINK). An instance in the past decade of the combination of rapid computation and telecommunications is also explored.

On the analytical side, the issue of the optimal scale of a working econometric model is explored. Because there are inflection points in the curve of computation costs, it is argued that there are two local optima in the construction of such models - one with a small scale model of roughly 100 - 250 equations that could be managed on the micro computer. The second local optimum might entail a larger scale model, say 500 equations or more, and would be handled on a standard electronic computer (or, if very large, on a supercomputer). The search for the global optimum then would entail a comparison of net benefits (gross benefits minus all relevant costs, including computation costs) with these two local optima. Finally, the paper is concluded by some cautious informal outlooking about likely future developments in this area.

References

1

Bodkin, R. G., L. R. Klein, and K. Marwah, 1991. A History of Macroeconometric Model-Building, Aldershot, England: Edward Elgar Publishing Limited.

2

Intriligator, M. D., R. G. Bodkin, and C. Hsiao. Econometric Models, Techniques, and Applications, Second Edition (Upper Saddle River, NJ: Simon and Schuster, forthcoming.