Introduction

In this part of the book we lay the theoretical foundations for the construction of larger macroeconometric models where large means the approximate size of, for example, the Murphy model of the Australian economy (approximately a hundred equations). In practice this implies that about twenty laws of motion have to be considered in order to describe the evolution of such an economy. Yet, in contrast to many models that are actually applied we insist here that such models must be completely specified in terms of budget equations (identities or restrictions) and the stock-flow interactions that they imply. Moreover the models should not only be formulated on the extensive form level, but must also allow for a representation in intensive terms as well (trendless variables as far as the theoretical representation of the model is concerned). This intensive form representation should then also allow the determination of at least one steady state solution, the stability of which is to be discussed from the perspective of the partial feedback structures which are included in the general formulation of the model.

In this chapter we extend the hierarchically structured continuous-time models of Keynesian monetary growth, that have been introduced and generalised in some respects in Chiarella and Flaschel (2000, Chs. 4–7), Chiarella et al. (2000, Chs. 4–6) and Asada et al. (2003) both for closed as well as open economies, along the lines of the macroeconometric Murphy model of the Australian economy.