The Energy Information Administration (EIA) uses models of the U.S. economy developed by Data Resources, Inc. (DRI) for conducting policy analyses, preparing forecasts for the Annual Energy Outlook, the Short-Term Energy Outlook, and related analyses in conjunction with EIA's National Energy Modeling System (NEMS) and its other energy market models. Both the DRI Model of the U.S. Economy1 and the DRI Personal Computer Input-Output Model (PC-IO)2 were developed and are maintained by DRI as proprietary models. This report provides documentation, as required by EIA standards for the use of proprietary models; describes the theoretical basis, structure and functions of both DRI models; and contains brief descriptions of the models and their equations.
For the last four decades, economists have theorized and developed models of the U.S. economy. Models built in the 1950's and 1960's were largely Keynesian income expenditure systems that assumed a closed domestic economy.3 High computation costs during estimation and manipulation, along with the underdeveloped state of macroeconomic theory, limited the size of the models and the richness of the linkages of spending to financial conditions, inflation, and international developments. Since that time, however, computer costs have fallen spectacularly; theory has also benefitted from four decades of postwar data observation and from the intellectual attention of many
The DRI Model of the U.S. Economy (hereafter, DRI U.S. Model) incorporates the best insights of many theoretical approaches to the business cycle: Keynesian, neoclassical, monetarist, supply-side, and rational expectations. In addition, the DRI U.S. Model embodies the major properties of the long-term growth models presented by James Tobin, Robert Solow, Edmund Phelps, and others.4 This long-term structure guarantees that robust long-run properties will temper short-run cyclical developments.
In growth models, (... ...)