Validating Dynamic General Equilibrium Model Forecasts

The maintained hypotheses embodied in structural general equilibrium models calibrated to data have tended to make economists and policy makers insecure regarding their empirical foundation. Advances in dynamic general equilibrium (DGE) theory and its empirical application have exacerbated this insecurity since the forecasts provide by these models brings questions of validation to the forefront. Here, methods are developed to measure the magnitude of bias in DGE forecasts that are simple to implement. We adopted the concordance correlation measure, and introduced a time function method to assess the bias in DGE forecasts. A time-series confidence interval method is also introduced to formally judge the "good" forecasts from the "bad". A calibrated DGE model is used to illustrate them. The time function method allows for the choosing of a functional form and an upper bound on forecast error. The time-series confidence interval method allows the DGE results to be evaluated by the standard of the rival time series models. If the DGE results are as good as time-series forecasts, the DGE model is a superior framework because of its advantage in providing not only "good" forecasts, but also insights into the economic structure generating the results. To illustrate these methods, we calibrate to Taiwanese data for the year 1988 a multi-sector Ramsey-based DGE model. The model is shown to forecast various dimension of the economy with surprising good, but varying accuracy. The proposed validation measures show effectiveness in distinguishing among diverse model parameter values and detecting model improvements. The measures are also statistically meaningful and require no arbitrary probabilistic assumptions on the distribution of either the results or the data.Research Methods/ Statistical Methods,

An Anatomy of Moroccan Agricultural Trade

Morocco is engaged in a number of economic reforms to better position the country's integration into world markets. Her agricultural sector is particularly important as its trade, GDP, and employment share are relatively large. We analyze Morocco's agricultural trade growth trends over the past 40 years (1962 - 2004) using SITC 4-digit bilateral agricultural trade data. The data are analyzed using the trend and cycles decomposition (TCD) approach and measurement of trade growth at the intensive and extensive margin. We find a high concentration of agriculture trade in both commodities and trading partners. Morocco has also lost export shares in EU to other EU countries in her top exporting commodities. Another finding suggests that agricultural export growth for Morocco was at the intensive rather than extensive margin. This posts a great challenge for Morocco if she is to expand trade at the extensive margin.International Relations/Trade,

Validating Dynamic General Equilibrium Model Forecasts

The maintained hypotheses embodied in structural general equilibrium models calibrated to data have tended to make economists and policy makers insecure regarding their empirical foundation. Advances in dynamic general equilibrium (DGE) theory and its empirical application have exacerbated this insecurity since the forecasts provide by these models brings questions of validation to the forefront. Here, methods are developed to measure the magnitude of bias in DGE forecasts that are simple to implement. We adopted the concordance correlation measure, and introduced a time function method to assess the bias in DGE forecasts. A time-series confidence interval method is also introduced to formally judge the "good" forecasts from the "bad". A calibrated DGE model is used to illustrate them. The time function method allows for the choosing of a functional form and an upper bound on forecast error. The time-series confidence interval method allows the DGE results to be evaluated by the standard of the rival time series models. If the DGE results are as good as time-series forecasts, the DGE model is a superior framework because of its advantage in providing not only "good" forecasts, but also insights into the economic structure generating the results. To illustrate these methods, we calibrate to Taiwanese data for the year 1988 a multi-sector Ramsey-based DGE model. The model is shown to forecast various dimension of the economy with surprising good, but varying accuracy. The proposed validation measures show effectiveness in distinguishing among diverse model parameter values and detecting model improvements. The measures are also statistically meaningful and require no arbitrary probabilistic assumptions on the distribution of either the results or the data

Regional Variation in Child Care Prices: A Cross-State Analysis

A recent study reported that the average annual fees for full-time infant care in a child care center ranged from $3,803 in Alabama to$13,480 in Massachusetts. This study analyses this variation in state-level average child care center prices using a standard economic model of supply and demand. We found that a large proportion of the variation in average child care prices can be explained by a small set of variables, including median family income, wages paid to child care workers, and the number of young children in the state. Although the gov-ernment plays an important role in the child care market, the wide variation in average fees across states mostly reflects what parents can afford to pay. Given the importance of quality child care to current workforce needs and future human capital development, strategies to in-crease affordability such as child care subsidies and tax credits should be considered along with direct investments in quality improvements

An Anatomy of Moroccan Agricultural Trade

Morocco is engaged in a number of economic reforms to better position the country's integration into world markets. Her agricultural sector is particularly important as its trade, GDP, and employment share are relatively large. We analyze Morocco's agricultural trade growth trends over the past 40 years (1962 - 2004) using SITC 4-digit bilateral agricultural trade data. The data are analyzed using the trend and cycles decomposition (TCD) approach and measurement of trade growth at the intensive and extensive margin. We find a high concentration of agriculture trade in both commodities and trading partners. Morocco has also lost export shares in EU to other EU countries in her top exporting commodities. Another finding suggests that agricultural export growth for Morocco was at the intensive rather than extensive margin. This posts a great challenge for Morocco if she is to expand trade at the extensive margin