While the software programs behind the Fairmodel and its Webpage are incredibly easy and user friendly, it will be helpful to most students if they get a demonstration from me before trying to do the model by themselves. You will see the use of data, generation of predictions, and creation of tables and graphs. Drop by or give me a call for a free demonstration! (You might print up First Exercise before coming).
The Workbook is separate from the web-pages that provide commands for running the program. Go to the Fairmodel page, click on http://fairmodel.econ.yale.edu/main2.htm where there is lots of interesting information. To run the program, scroll down about two thirds of the page, and click on The US Model (Solve current version or versions dated October 31, 2005, and forward) (or just go there directly).
Over the course of the term, you will need to access virtually all of the
Workbook. You might wish to print up much of the Workbook and its Appendices.
Our only interest will be the
Chapters 1 and 2 in the Workbook are important preliminary reading. There is a basic discussion of the nature of econometric models, what they do and how they're estimated. In addition, there are some details which are mentioned, and which you'll need to refer back to subsequently. For example, the model's (default) treatment of monetary policy differs from standard textbook presentation. It can be changed, of course, and is not so important for the first couple of exercises. Another example is the fact that some variables refer to years, and others to quarters.
One of the reasons for my enthusiasm for this course is that I agree completely with the Workbook's authors that a careful working through of the first few exercises in Chapter 5 (Fiscal Policy) provides both a nice introduction to the model itself, and a useful review of standard macroeconomics.
Patient students will want to do the preliminary exercises (Chapters 3 and 4) before starting Chapter 5. Those of us who are less disciplined will jump into Chapter 5, and probably scurry back to the preliminary materials as panic sets in. On the basis of recent experience, it would appear to be a good idea to keep the files for each exercise, (hard copy or electronic files) as there is often need to refer back to the results of a previous exercise, particularly for the values of a variable which wasn't printed up the first time through.
Still interested? Click here for the Syllabus. Further bibliography is available, to complement the Syllabus.
Skeptical economists might well wonder how much this model reflects the interventionist attitudes dominant in economics when this type of macroeconometric model was first being developed. Read the Workbook (or Fair, 1984) and judge for yourself. One fundamental issue is the long run multiplier of expansionary fiscal policy, which is addressed in the first exercise. Supply Side Experiments are suggested in section 13.5 of the Workbook; my sense is that if the Laffer curve doesn't work in the Fairmodel, it is not necessarily Fair's fault. More importantly, the rational expectations critique of countercyclical policy is addressed in Workbook Section 13.3, and other technical works, such as Fair's 1993 book, as well as his article in the 1993 American Economic Review. This is the topic for one of the papers. Finally, it can be commented that this model, due to its careful construction, does not have any of the obvious inconsistencies usually attributed to IS-LM models. This is discussed in Fair's 1984 book, which is the source for detailed reading on the model. That book will be on 3-day reserve at the UM-D library.
Professor Twomey's office is upstairs in 2290 SSB; he can be reached by phone at 313-593-5176 (o), or by clicking mtwomey@umd.umich.edu