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KGEMM Methodology

In: A Macroeconometric Model for Saudi Arabia

Author

Listed:
  • Fakhri J. Hasanov

    (King Abdullah Petroleum Studies and Research Center)

  • Frederick L. Joutz

    (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)

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.

Suggested Citation

  • Fakhri J. Hasanov & Frederick L. Joutz & Jeyhun I. Mikayilov & Muhammad Javid, 2023. "KGEMM Methodology," SpringerBriefs in Economics, in: A Macroeconometric Model for Saudi Arabia, chapter 0, pages 21-24, Springer.
    • Handle: RePEc:spr:spbchp:978-3-031-12275-0_4
    DOI: 10.1007/978-3-031-12275-0_4
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