Forecasting from an Econometric Micromodel in the Form of a System of Interdependent Equations

Abstract

The sixth chapter discusses the specificity of forecasting a small enterprise as an economic system. Feedback and closed cycles of connections appear in such a system. This means that the econometric model is a system of interdependent equations. The classical approach to predicting from a system of interdependent equations is to use the empirical equations of the reduced form. This paper presents an iterative forecasting method based on the structural form of the system of interdependent equations, which guarantees synchronization of forecasts. Therefore, in the first place, an iterative forecasting method based on the econometric micromodel of an enterprise with a closed cycle of relationships was presented, assuming the inertia of the system. The next step were the forecasts, obtained iteratively, while interfering in the system with the use of control variables. The last prognostic solution for the system with feedback was the forecasting of financial liquidity and the effectiveness of debt collection using earlier forecasts of variables that formed the cycle. Forecasts obtained by the iterative method guarantee synchronization in the system, while forecasts from the reduced form based on the econometric micromodel result in discrepancies, i.e. lack of synchronization.