Sitting on my veranda I wonder how I can tell you about how to build a macro model. I’m sure you have a spreadsheet. That’s the most important part. You have data and you want to start. What do you do?

Building a macro model in 10 steps
In this series of articles I will talk about how you build a macro economic model from scratch. And I will show you a special macro model, which will help you analyze your economy, calculate the effects of policy scenarios and help you understand where your economy is going. I will discuss how to build a macro economic model for a small open economy with a tourism sector. Because those economies I know best. In another article I already showed you how a macro model can help you show your problems. Here you see some benefits of using a macro model in your analyses.

There will be 10 steps in building your macro economic model. Each step will be at least one article. I promise.

The steps are:
1. Gathering data
2. Setting up your database.
3. Building your consistency framework (the past of your model).
4. Building your behavioural equations (the future of your model).
5. Building your micro block (tourism sector).
6. Testing what if scenarios.
7. Calibrating your macro model.
8. Your first mini economic outlook.
9. Alternative assumptions.
10. Upgrading your model with modules.

Baby macro model
We will be building a functional baby macro model in a spreadsheet in these series. This just to show you what can be done with macro economic models in spreadsheets. The macro model will be about 33 rows. And although it is a baby model it has all the features of a more advanced macro economic model. Most macro economic models I build are about 7 times bigger. If you want to analyze real life policy scenarios you need more behavioural equations and more sectors in the economy. If you are starting with a macro model here I give 7 tips for professionals starting with economic analysis and a macro model.

Assumptions
In this series I assume you have basic knowledge of Excel. You do not need to be an economist, although some economic knowledge will sure help. I also assume you want to know more about the economy of your island. And that you are commited to learning and upgrading your knowledge. Does that sound fair?

Ask questions and comment
We will do this together. I want to know what you think and what are your main problems and challenges when you make and use a macro model.
You can ask questions which I will try to answer. I will post at least one article a week about this topic. If you want to receive a notice or my newsletter, please contact me and I will let you know.