^{note (1) in page 52} This paper was presented to the Academic Panel of HM Treasury in November 1977. The authors are at the London Business School, HM Treasury and the National Institute of Economic and Social Research respectively. The study has benefited from the guidance of the members of the Academic Panel, which advises the Treasury on macroeconomic modelling. The initial simulations on the Treasury model were carried out by J. Walker. The work at both the LBS Centre for Economic Forecasting and the National Institute received financial support from the Social Science Research Council.

^{note (2) in page 52} See National Institute Economic Review No. 80.

^{note (1) in page 54} C. F. Christ, ‘Judging the Performance of Econometric Models of the US Economy’, International Economic Review, vol. 16, No. 1, 1975.

^{note (2) in page 54} The prices of these publications are £1.50 for the Treasury and National Institute and £2.00 for the London Business School. These manuals refer to the models as they stood in February, May and September 1977, respectively, and will therefore differ in some instances from the versions used here. A complete listing of all such deferences in model specification is available on application to the authors.

^{note (3) in page 54} The current Treasury macroeconomic model contains no formal monetary sector as such. In the preparation of forecasts, the output of the macro-model is taken together with the results for the external and domestic financial sectors to produce a complete, integrated set of forecasts. The present flow of funds approach to financial forecasting has been described by M. E. Hewitt in the Bank of England Quarterly Bulletin, June 1977. It is intended that a full monetary model consisting of over 100 equations should be brought into line alongside the existing system during 1978. For the purpose of these simulations a small interim monetary sector, which has been developed to help with simulations within the Treasury, was used in addition to the existing capital flows model. A list of these additional equations is available on request from HM Treasury. The results of those simulations with endogenous interest rates should not therefore be regarded as established properties of Treasury models. The National Institute's monetary sector should also be regarded as provisional and a project is underway to replace it with a more sophisticated model.

^{note (1) in page 55} It should be stressed, however, that there is little faith in the existence of a stable Phillips curve for the UK and these equations are not used in actual forecasting.

^{note (2) in page 55} See R. A. Batchelor, ‘Sterling exchange rates : a Casselian analysis’, National Institute Economic Review, No. 81, August, 1977.

^{note (3) in page 55} R. J. Ball and T. Burns, ‘The inflationary mechanism in the UK economy’, American Economic Review, Vol. 66, No. 4, 1976.

^{note (1) in page 56} All these results are reported in G. A. Renton (ed.), Modelling the Economy, Heinemann, 1975.

^{note (1) in page 61} Such a mechanism can be found in Mundell‘s analysis of fiscal policy under a floating exchange rate regime with perfect capital mobility. See R. Mundell ’Capital Mobility and Stabilisation Policy Under Fixed and Flexible Exchange Rates', Canadian Journal of Economics, 1963

^{note (1) in page 63} R. J. Ball, T. Burns and J. S. E. Laury, ‘The role of exchange rates changes in balance of payments adjustment—the United Kingdom case’, Economic Journal, March 1977, pp. 1-29.

^{note (2) in page 63} Compare these with, for example, B₁=0.56, B₂=0.15, B₃=0.13 obtained by M. Goldstein, ‘The Effects of Exchange Rate Changes on Wages and Prices in the UK: an Empirical Study’, IMF Staff Papers, November 1974, pp. 694-739.

^{note (3) in page 63} In the current model exports of goods are broken down into four categories with the price lags applying only to manufactured goods. Previously there had been one equation for exports of goods and the lag distribution was imposed rather than estimated.