ABSTRACT
Macroeconomic models describe, in a stylized form, how economic activity takes place and the forces that are in play to push the economic variables toward a long-term equilibrium or steady state. Because of that, economic models could be very useful to design better forecasting models. This chapter begins by analyzing the interplay between economic models and forecasting models, and the relations between long- and short-term information. It explores how to integrate our knowledge of short- and long-term dynamics in time series data. The economist will think that in the short term, increasing prices will partly correct the excess demand, and when new production processes are restored, a gradual increase in future production will take place.
