Simulation with large econometric models: The quest for a solution

Abstract

This paper describes the development of algorithms to solve large-scale macroeconometric models. The bulk of this paper was written in 1970 when the problem of finding solutions for these large-scale models was still an issue. During the 1960s, large powerful (for that time period) computers became available for use by economists who proceeded to use this powerful new tool to develop and apply econometric software to the problem of estimating large-scale macroeconometric models such as the Wharton Quarterly Model and the Brookings Model. Having succeeded in estimating these models, the next problem was to find a way to solve them either in the context of simulation experiments or forecasting exercises. During the late 1960s, the author investigated the problem of solving these large-scale models and found several acceptable methods which are presented in this paper.