2. Role and Usefulness of Models

3. Role of Models Models can be used as a tool. Models average past behavior. Models are consistent and systematic framework. A Model forecast is based on assumptions. Should be used with MPB’s judgement.

4. Usefulness of Economic Models Help in forecasting macroeconomic picture. Assist in evaluating effects of policies and external factors on the economy.

5. Models, Forecasts and Policy Core modelAssumptionsOther model Forecast MPB’s judgements Other issues and policy judgements Policy decision Policy recommendation from the model

6. Macroeconomic Model Financial Block External Block Real Sector Block Public Sector Block Sectoral Model Core Model Financial Programming Framework Indicato rs Policy Questions Policy Conclusion Policy Simulation & Forecasting Reaction Function Forecast ing Inflation Indicator Output Inflation Inflation Targeting Optimal Solution

7. Model needs to be improved depending on: ๏ New data become available. ๏ The opportunity in developing and improving the model. ๏ Changes in the economic and social environment. ๏ New research findings in economics and new techniques in econometrics.