Differences in the properties of large-scale macroeconometric models: the role of labour market specifications

This paper examines important differences in simulation properties of four leading UK macroeconometric models that arise from features of their labour market specifications. Econometric evaluation of model equations and their subsequent re-specification, together with sensitivity analysis of simulation results, explains and resolves differences in overall model properties. The examples cover the determination of non-manufacturing employment, the modelling of employment, unemployment and the working population, and the effect of the retention ratio on wage determination. Increased attention to systematic comparison and testing leads to increased convergence of model simulation results or, as second best, increased understanding of the reasons for divergence.