Introductory

In recent years various attempts have been made to construct econometric models of the business cycle mechanism. Some of them are very simple, others more complicated; some pay more attention to the mathematico-economic set-up, others give special care to a statistical determination of the coefficients involved. The latter group is notable for, in particular, the model by Radice of the post-war United Kingdom, that by De Wolff of post-war Sweden, and my own attempts for the Netherlands and the United States. As far as I am myself concerned, a ‘model under construction’ is that for the United Kingdom between 1870 and 1914.

An essential feature of an econometric model is, I think, that it combines mathematico-economic treatment with statistical measurement of some type. The ultimate objectives of these models are the same as of any system of business cycle research, viz. (i) to explain historical events; (ii) to forecast future developments under certain conditions; and (iii) to indicate the probable consequences of measures of business cycle policy. Within the framework of these ultimate objectives, one may distinguish more proximate objectives. These may be separately stated for the economic and the statistical parts of the task. The objectives of the economic part are, to my mind:

1. (a) to clarify notions and assumptions of various theories and to localise differences of opinion;

2. (b) to find the complete implications of any set of assumptions as to type of movement resulting, influence of given types of policy, etc.