A Macro-Economic Policy Model of the United Kingdom 1855-2014 with Investment, Share Prices and 'Animal Spirits'.

59 Pages Posted: 24 Apr 2017

See all articles by Peter Jonson

Peter Jonson

University of Melbourne; RMIT University

Clifford R. Wymer

Sapienza University of Rome

Date Written: April 24, 2017

Abstract

This paper presents a long-term model of the UK economy. It builds on a stream of modelling that seeks to describe the properties of an economy with a non-linear differential equation system the parameters of which are estimated using a continuous-time Full Information Maximum Likelihood (FIML) estimator which takes into account the fact that while models, like economies, are continuous, data are discrete. The dynamic and other properties of the estimated model may then be analysed using appropriate mathematical techniques. The results include successfully embedded hypotheses about the source and effects of a measure of 'Animal Spirits', thereby resolving a previously intractable gap between economic theory and empirical representation of real economies.

The approach here involves using a simple but logically complete structural model of the UK economy. It builds on similar modelling at the London School of Economics in the late 1960s and 1970s, at the IMF and Reserve Bank of Australia in the 1970s and continuing work there and elsewhere from the 1980s. All this work used structurally complete models with different levels of detail.

Keywords: Animal Spirits, investment, monetary disequilibrium, bank lending

Suggested Citation

Jonson, Peter and Wymer, Clifford R., A Macro-Economic Policy Model of the United Kingdom 1855-2014 with Investment, Share Prices and 'Animal Spirits'. (April 24, 2017). Available at SSRN: https://ssrn.com/abstract=2957386 or http://dx.doi.org/10.2139/ssrn.2957386

Peter Jonson (Contact Author)

University of Melbourne ( email )

185 Pelham Street
Carlton, Victoria 3053
Australia

RMIT University ( email )

124 La Trobe Street
Melbourne, 3000
Australia

Clifford R. Wymer

Sapienza University of Rome

Piazzale Aldo Moro, 5
Rome, 00185
Italy

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