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Abstract

The latest version of a large-scale multisectoral dynamic model of the UK's economy, developed by the Cambridge Growth Project under direction of Sir Richard Stone, is described. Its dynamic properties, owing to an investment cycle of the order of five or six years, and its main economic properties are analysed thoroughly.

The medium- term nature of the model is exploited to formulate a macroeconomic policy for the UK's economy. An understanding of the long- run dynamics of the economy is crucial, since a change in policy today has complicated consequences many years later. A regulation approach is proposed and yields an optimal reflationary mix for steering the economy over the next decade towards its desired target trajectory. The dynamics in the policy ensure satisfactory levels for growth, inflation and unemployment. The industrial implications of the feedback policy are discussed and suggestions for sectoral policy are given.

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Control of medium-term dynamic econometric models: an application to the Cambridge Growth Project model

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