Econometric Models of the Financial Sector

Abstract

This paper has three main purposes. The first is to call attention to some theoretical points concerning the structure of financial economic models. The second is to discuss some theoretical features of the financial models embodied in nine important quarterly econometric models of the United States economy. The third is to discuss the results of dynamic simulations and policy simulations that have been reported by the authors of those nine models. The references containing the nine financial models, and the complete models to which they belong, are as follows: 1. Evans and Klein (1967) [12, p. 13]: the Wharton model; 2. Liebenberg, et al. (1966) [20, pp. 33-34]: the OBE model; 3. Suits (1969) [23, pp. 21-26]: the 1968 Michigan model; 4. de Leeuw (1969) [7, pp. 277-78]: the 1968-69 condensed Brookings model (also in Fromm and Taubman, 1969 [15, pp. 14344]); 5. de Leeuw (1965) [6, pp. 47S79]: the original 1965 Brookings model; 6. de Leeuw and Gramlich [8, p. 31]: the January, 1968 FRB-MIT model; 7. de Leeuw and Gramlich (1969) [9]: the December, 1968 FRB-MIT model; 8. Kaufman and Laurent (1969) [18]: the FRB-Chicago model; 9. Rasche and Shapiro (1968) [22]: the December, 1967 FRB-MIT model. The last seven financtal models have 8 to 31 equations. The first two have only

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