The Quest Macro Model

Quest is a quarterly economic structural model of the US economy. It can be used for forecasting over a hundred of the series in the quarterly GDP accounts, employment, unemployment, inflation, and the Treasury bill rate. Quest can be used to study how various policy changes -- such as cuts or hikes in government spending or taxes, easy or tight money -- will affect the aggregate economy. Your equations relating your company to Quest variables then can spell out, in a matter of seconds, the implications of those policy changes for your company.

The word structural is important in Quest's title. We have tried to avoid mere auto-regression. Only one equation in Quest falls back on the crutch of using the previous quarter's value of the dependent variable as an explanatory value. Rather, we have insisted on finding a causative structure. The result is a model that simulates over ten years or more almost as well as over three or four quarters. This property makes Quest especially valuable in teaching macroeconomics, where it is very important to recognize the difference between immediate and long-run consequences of policies.

But the name Quest implies more than it abbreviates. Up until now, econometric models have been sold as sealed units with a notice of "no user serviceable parts" on its central core. The user may be told how the model works, he may be allowed to put an additive factor on one or another equation, he may even be allowed to vary a few coefficients in the equations, but the basic theories embodied in the model cannot be altered. Quest, by contrast, comes with the G command files for estimating all of its equations, the necessary data bank for re-estimating it, and the master file for creating the model. If you also have G, Build, and Borland C++ compiler, you can replace equations with others that you believe better describe how the economy works. You can join the Quest for the ideal model. In particular, if you are a teacher of economics, you can develop for your class a model based on the theories you want to emphasize -- provided they fit the facts.

Alternatively, you can use Quest just like it comes (In that case, you don't need Build ). After all, that is the way we are using it at the time it is sent to you, and we like to think we know something about model building. The manual explains the economic content of the equations and shows how well the model would have tracked the economy in the past. It shows how to make forecasts under alternate assumptions and how to make tables comparing them.

Clopper Almon's 1999 working paper, "Real Effects of a Fall in the Stock Market" discusses the features and uses of QUEST.

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