London Graduate School of Business Studies

Abstract

The structural approach to economic forecasting differs from familiar models based on the classical analysis of time series in that it requires the specification and estimation of the inter-relationships that are taken to represent economic structure. The first part of the paper deals briefly and rapidly with some of the problems encountered in specifying and estimating such structural models. The second part deals with the applications of such models and their implications for forecasting and policy analysis. These sections are intended to be fairly allusive and preparatory to the main body of the paper which discusses a specific example of a simple econometric model of the U.K. economy constructed at the London Business School. The model is described in terms of its structural relationships, and the results of some simulation work are presented. The paper concludes with some general evaluation of the approach in the light of the specific illustration discussed.