Macroeconomic model

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Example of a Macroeconomics Model

A macroeconomic model is an analytical tool designed to describe the operation of the economy of a country or a region.


  • In contrast to Smith’s incomplete modeling, his follower, David Ricardo, provides a coherent setting— basically, the first macroeconomic model—that can be tested, modified, and applied. Although Ricardo is surely narrower and less imaginative and insightful than Smith, he is also a lot better organized. That is why Ricardo’s analysis of macroeconomics—for example, of the implications of public debt—is more coherent and useful than Smith’s.
  • Policy models, aimed at analyzing actual macroeconomic policy issues. Models in this class should fit the main characteristics of the data, including dynamics, and allow for policy analysis and counterfactuals.
  • The different classes of models have a lot to learn from each other, but the goal of full integration has proven counterproductive. No model can be all things to all people.
    • Olivier Blanchard, "On the future of macroeconomic models", Oxford Review of Economic Policy, Volume 34, Numbers 1–2 (2018)
  • These ideas have implications not only for theoretical and econometric practices but also for the ways in which policymakers and their advisers think about the choices confronting them. In particular, the rational expectations approach directs attention away from particular isolated actions and toward choices among feasible rules of the game, or repeated strategies for choosing policy variables. While Keynesian and monetarists macroeconomic models have been used to try to analyze what the effects of isolated actions would be, it is now clear that the answers they have given have necessarily been bad, if only because such questions are ill-posed.
    • Thomas J. Sargent and Neil Wallace. "Rational expectations and the dynamics of hyperinflation." International Economic Review (1973): 328-350.

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