A Simple Macroeconometric Model of the Sierra Leone Economy

Ibrahim Abubakarr Bah

EconStor Preprints from ZBW - Leibniz Information Centre for Economics

Abstract: Given the need to analyze how economies respond to economic shocks, it has become prudent for economic policymakers to design increasingly sophisticated and dynamic tools to predict economic performance in the presence of shocks. This study designs a simple macro-econometric model of the Sierra Leone economy based on the Keynesian national income identity. The econometric model contains five single equations, 6 endogenous variables, and 3 exogenous variables estimated using two-stage least squares (2SLS). The results of mean absolute percentage error (MAPE) and mean percentage error (MPE) largely validate the performance of our model. To test the performance of our model, the baseline simulations are tested against 3 policy shocks; a 15% increase in government spending, a 15% increase in money supply, and a 15% increase in both government spending and money supply. Unlike the fiscal policy shock, the monetary policy shock only affects the interest rate. The results from the exercise largely follow the actual performance of the Sierra Leone economy over the period of study.

Keywords: Simultaneous-equations; two-stage least squares; national income identity; Sierra Leone (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:esprep:267151

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