ANTICIPATIONS VARIABLES IN AN ECONOMETRIC MODEL: PERFORMANCE OF THE ANTICIPATIONS VERSION OF

THE USE OF ANTICIPATORY DATA for prediction and, specifically, their inclusion in econometric models has many precedents.2 But the question of how anticipations variables affect the multiplier and error properties of models has not been explored in depth. The Wharton Mark III model offers a unique opportunity to observe the effect of anticipatory data since the model is available, and is used for current prediction, in two variants: the Standard Version, which does not include anticipations data, and the Anticipations Version which makes use of the Michigan index of consumer sentiment, the BEA investment anticipations, and data on housing starts.3 The Anticipations Version introduces the anticipations structurally, as a step in the formation of economic behavior. It includes functions to explain the anticipations variables themselves. When observed values of anticipations are available, they are used; for forecast horizons for which no observed anticipations variables apply, the anticipations are estimated by the model. Consequently it is possible to distinguish between the effect on the model's properties of the structure including the anticipations and separately the effect of information embodied in the observed values of the anticipations variables. This paper is concerned with the properties of the Anticipations Version of Wharton Mark III. It focuses on the effects of anticipations variables on the multipliers and error properties of the model.