A macroeconomic model is an analytical tool designed to describe the operation of the economy of a country or a region. These models are usually designed to examine the dynamics of aggregate quantities such as the total amount of goods and services produced, total income earned, differential equations blanchard pdf level of employment of productive resources, and the level of prices.
Thus, macroeconomic models are widely used in academia, teaching and research, and are also widely used by international organizations, national governments and larger corporations, as well as by economics consultants and think tanks. Fleming model of Keynesian macroeconomics, and the Solow model of neoclassical growth theory.
These models share several features. They are based on a few equations involving a few variables, which can often be explained with simple diagrams. Many of these models are static, but some are dynamic, describing the economy over many time periods.
In the 1940s and 1950s, as governments began accumulating national income and product accounting data, economists set out to construct quantitative models to describe the dynamics observed in the data. Thus, these models grew to include hundreds or thousands of equations describing the evolution of hundreds or thousands of prices and quantities over time, making computers essential for their solution. Dutch economist Jan Tinbergen developed the first comprehensive national model, which he built for the Netherlands in 1936.
He later applied the same modeling structure to the economies of the United States and the United Kingdom. The first global macroeconomic model, Wharton Econometric Forecasting Associates’ LINK project, was initiated by Lawrence Klein. The model was cited in 1980 when Klein, like Tinbergen before him, won the Nobel Prize. Large-scale empirical models of this type, including the Wharton model, are still in use today, especially for forecasting purposes.