Chapter

A Comparison of the Michigan and Fair Models

Ray C. Fair and Lewis S. Alexander

in Comparative Performance of U.S. Econometric Models

Published in print June 1991 | ISBN: 9780195057720
Published online October 2011 | e-ISBN: 9780199854967 | DOI: http://dx.doi.org/10.1093/acprof:oso/9780195057720.003.0006
A Comparison of the Michigan and Fair Models

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This chapter compares the predictive accuracy of the Michigan and Fair econometric models using the method developed in Ray Fair. These models are compared to each other and to an eighth-order autoregressive model. The method accounts for the four main sources of uncertainty of an economic forecast: uncertainty due to the error terms, the coefficient estimates, the exogenous variables, and the possible misspecification of the model. Because it accounts for these four sources, it can be used to make comparisons across models. The method has been used to compare the Fair model to autoregressive models, vector autoregressive models, Thomas Sargent's classical macroeconomic model, and a small linear model, but this is the first time it has been used to compare two relatively large structural models. The chapter's primary aim is to demonstrate the application of the comparison method to large models.

Keywords: econometric models; Ray Fair; uncertainty; economic forecast; Thomas Sargent; macroeconomic model; autoregressive models

Chapter.  13128 words. 

Subjects: Econometrics and Mathematical Economics

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