Learning from errors : an evaluation of the IAB-RWI-business cycle model

Abstract

In the years 2000 through 2008, the RWI economic research institute's economic trend (business cycle) model has been extended by labour market research modules and applied at the Institute for Employment Research (IAB), mainly for the quantification of effects of economic and political impulses on the labour market. We ask in how far the macroeconomic models live up to the rising expectations towards scientific policy consulting. Basic features of the IAB-RWI model are explained and the model's fit is investigated. For that purpose, we compare some selected common error measures for two versions of the model. The new model from 2007 contains linked price indices on the basis of the precedent year's prices, after the revision of the national accounts (VGR) in 2005, mechanisms for the correction of errors, and a detailed illustration of foreign trade (earlier project-LINK version). It is found that, even in the long run, the new model attains the same stability as the earlier version without error correction models and linked price indices, in spite of the increased model dynamism. Thus, the supposed contradiction between the long-term orientation of error correction models, on the one hand, and the rather short-term oriented economic and empirical foundation of the IAB-RWI model, on the other hand, does not impact on model quality. (IAB)

Cite article

Klinger, S. & Ulrich, J. (2009): Aus Fehlern lernen: Zur Treffsicherheit der Fortentwicklung des IAB-RWI-Konjunkturmodells. In: A. Wagner (Hrsg.) (2009): Empirische Wirtschaftsforschung heute : Festschrift für Ullrich Heilemann zum 65. Geburtstag, p. 85-98.