KGEMM Methodology

Fakhri J. Hasanov, Fred Joutz, Jeyhun I. Mikayilov and Muhammad Javid
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Fakhri J. Hasanov: King Abdullah Petroleum Studies and Research Center
Jeyhun I. Mikayilov: King Abdullah Petroleum Studies and Research Center
Muhammad Javid: King Abdullah Petroleum Studies and Research Center

Chapter Chapter 4 in A Macroeconometric Model for Saudi Arabia, 2023, pp 21-24 from Springer

Abstract: Abstract This chapter briefly describes the methodological framework KGEMM uses. KGEMM is a hybrid model, i.e., it brings together theoretical and empirical coherences at some degree. Put differently, KGEMM nests “theory-driven” and “data-driven” approaches as suggested by Hendry (2018), among others, and employed by modelers in building semi-structural macroeconometric models (e.g., see Jelić and Ravnik 2021; Gervais and Gosselin 2014; Bulligan et al. 2017). For this purpose, it uses an equilibrium correction modeling (ECM) framework, in which the long-run relationships follow economic theories, and the short-run relationships are mainly data-driven (see Pagan 2003a, b inter alia). Hara et al. (2009) and Yoshida (1990), among others, note that ECM-based MEMs provide realistic results as their equilibrium correction mechanisms help stabilize long-term projections and capture short-term fluctuations more than other models while Engle et al. (1989) find the forecast performance of ECM more accurate.

Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:spr:spbchp:978-3-031-12275-0_4

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DOI: 10.1007/978-3-031-12275-0_4

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