DLSU-AKI Policy Brief, Volume VII, No. 17
Mitigating Emissions Associated With the Production of Traded Goods
BRAc RN 2021-01
Shedding Light on Bank Deposits in Philippine Provinces
Modernizing VAT in the Digital Economy
Nature-Based Policies Towards Green Recovery: Mitigating the Impacts of Climate Change and Future Disease Outbreaks

PIDS WB 2021-1104
Assessing the Philippines' Performance in Meeting the ASEAN Economic Community Vision 2025
PIDS WB 2021-1103
Examining The Health Impacts Of The COVID-19 Pandemic In The Philippines
ILS 30th Anniversary Video
PIDS WB 2021-1102
Evaluating the Pantawid Pamilyang Pilipino Program's Payment System
Publication Detail
DP 2001-22: Alternative Estimation Methodologies for Macro Model: ECM vs. OLS

Macroeconometric models have proven to be a useful tool in analyzing the economy-wide or sector-specific effects of policy measures. Simulations using these models have enabled planners and policymakers to trace through the effects of proposed policy changes or external shocks as well as quantify their impacts. Their importance as an aid to planning is well recognized. The NEDA Annual Macro Social Model employed the Error Correction Model representation of the dynamic model. Two-stage estimation is used. The first stage determines the long-run relationship among the variables. The second stage illustrates the short-run dynamics influenced by the deviation from the long-run relationship. The PIDS Annual Macro Social Model had followed the model structure and specifications of the equations used for NEDA AMSM making use of the Ordinary Least Squares estimation. The tracking performances of the two models were evaluated after the dynamic simulation over the period 1992 – 1998. The criterion for good performance is that Mean Absolute Percentage Error (MAPE) should be as small as possible. In general, the results showed that the Error Correction Model method performs better than the OLS estimation method. In addition, the ECM captures better the volatile behavior of the data. However, the procedure for doing the ECM method is not as simple as in employing the OLS method since it is quite complicated and tedious. Moreover, a set of cointegrating variables is necessary. In contrast, employing the OLS estimation is simpler. For each variable, a single equation is estimated incorporating both long-run and short-run dynamics. Adequacy of the equations is determined through adjusted R 2, Durbin Watson and stationarity of the residuals.

Philippine Institute for Development Studies
Authors Keywords
Buenafe, Sheila W.; Reyes, Celia M.; macroeconometric model; cointegration; Error Correction Model; Ordinary Least Square; mean absolute percentage error; two-stage estimation; long-run dynamics; short-run dynamics;
Download PDF Number of Downloads
Published in 2001 and available in the PIDS Library or Downloaded 837 times since November 25, 2011
Please let us know your reason for downloading this publication. May we also ask you to provide additional information that will help us serve you better? Rest assured that your answers will not be shared with any outside parties. It will take you only two minutes to complete the survey. You will answer the profile questions only once as long as you enter the same email address. Thank you.

To use as reference:
If others, (Please specify):
Name: (optional)
Email: (required, but will not display; please use the same email address when downloading another publication so that the profile questions will not appear)
If Prefer to self-describe, please specify:
Level of Education:
If employed either part-time or full-time, name of office:
If others, (Please specify):
Would you like to receive the SERP-P UPDATES e-newsletter? Yes No
Use the space below if you have any comment about this publication or SERP-P knowledge resources in general.