The WEFA U.S. macro model with chain-weighted GDP

Abstract

We describe the impact of the new GDP methodology on WEFA's Quarterly model. First we briefly describe WEFA's Mark 11 Quarterly model and its uses, which create certain restrictions on the model specification. We then discuss the question of the possible impact of the new methodology on estimated elasticities and model multipliers. Since we adopted a new econometric methodology with the new model, the elasticities cannot be usefully compared. Finally, we describe our solution to the ``adding up'' problem created by BEA's complex Fisher Index number approximation. The new WEFA model uses a chained Laysperes index formula to approximate BEA's complete formula.