ABSTRACT
The basis of applied macro models is almost invariably a set of national accounting identities. Their role is to ensure that model solutions satisfy certain equilibrium conditions that hold by definition. For example, the material balance identity states that the supply of goods must be equal to demand, while the balance-of-payments identity implies that the use of foreign exchange matches the amount of foreign exchange available. Although national accounting can be rather tedious, it is a thesis of this study that a consistent accounting framework is a valuable tool when working with applied macro models. First, it provides a natural link to national account data, which will generally be the starting point for exercises attempting to analyse economy-wide policy issues. Second, it imposes a set of constraints, which ensure that policy analysts cannot make predictions that are internally inconsistent, and therefore forces some discipline into discussions of the best choice of economic policies.
