Macroeconometric model of an oil based economy : case study of Libya
Macroecometric models are extremely important for developing countries as well as for developed countries. They can help and guide planners, policy makers and government leaders to establish priorities in their activities and to chose those policies which permit the most the rapid advance of economic development. The aim of this thesis is to construct a macroeconometric model for the Libyan economy and to use the model to forecast future economic activities under different scenarios. The Background of the Libyan economy is outlined first. Brief reviews of the theory of the background to the model components are given in the first part of the thesis. The specification of the model equations, depending on the economic theory and estimation procedures are carried out in the second part of the thesis. The calculations are carried out with a TSP package. Model validation is carried out in the third part of the thesis. This includes model evaluation (tracking performance and dynamic properties) and multiplier analysis. Model implications, such as forecasting (Ex-Post and Ex-Ante) are described in the last part of the thesis. Two different scenarios are considered. These scenarios explore the effects of different sets of oil prices and production on the Libyan economy, for the period 1996-2005. Several policy implications are derived from the results of the scenarios. The conclusion reached is that the Libyan economy is heavily dependent on Oil Revenues and any shock in this variable will have great effects on the Libyan economy. Also, excessive government spending is the main reason for the high inflation rate, which also leads to the crowding out of private investment.