The Short-term Forecasting Model

Abstract

The short-term forecasting model is the first of a series of types of models, to be discussed in some of the following chapters. In fact the term ‘tiannual macro-economic model’ would be more appropriate. The one essentially different feature of quarterly models, seasonal adjustment, is not discussed in this book. This type of model is the oldest kind of model in existence, and up to now it is also probably the one that is most frequently applied in practice, mainly for macro-economic policy-decisions. The essential short-term element is the assumption that demand is always met by supply. This type of model is essentially a tidemand model. An increase in demand will have certain side-effects such as higher prices, increased imports, etcetera, but a realistic short-term model should not identify1 potential production with sold output.