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Towards Rational Macroeconomic Modeling? Pierre Malgrange The purpose of this paper is to explain and evaluate the strengths and weaknesses of the quarterly PLM model of the French economy, which is based on a pattern of intertemporal optimisation and rational expectations. We first of all present a very simple specification, which is similar to the canonical model of optimal growth and integrates government spending. This structure is then enhanced step by step, first by the opening up of the economy and the factoring in of nominal wage rigidity. Then we introduce monopolistic competition and lastly various viscosities resulting in the persistence of a certain number of mechanisms. Characterisation is attained by making a "responses to impetus" analysis, i.e. by calculating the multipliers associated with the two generic supply and demand shocks.

The Distribution of Value Added in the Cycle: Suggestions for General Equilibrium Modeling Christophe Hurlin and Franck Portier In this article, we present a brief empirical overview of the cyclical components in the distribution of value added in the G7 countries for the 1960-1994 period. We then suggest some ways of modeling the cyclical fluctuations in this distribution using dynamic stochastic general equilibrium models with rational expectations.

Taxes, Social Security Contributions, Skills and Employment: A Study Using the "Julien" Computable General Equilibrium Model of the French Economy Jean-Pierre Laffargue The underlying rate of unemployment has been rising more sharply among the unskilled than the skilled since 1960. It could therefore be said that employment policy should focus primarily on unskilled jobs. This paper analyses the economic effects of a decrease in employers' social security contributions and other taxes on the different skills levels, especially as regards employment. For this purpose, we use a model of the French economy called "Julien". This is a dynamic model that adopts a framework of monopolistic competition. It considers that agents optimise their behaviour over time with rational expectations and it includes a detailed labour market model.

Forecaster Heterogeneity: An Investigation of the Expectations of Foreign Exchange Forecasters Ronald MacDonald and Ian W. Marsh Adatabase of individual forecasters' exchange rate predictions is analysed. We demonstrate that only a small subgroup of forecasters can be described as rational, that some forecasters are significantly more accurate than others, and that this heterogeneity of expectations is positively related to trading volume in the futures market.

Formation of Exchange Rate Expectations: A Mixed Process Hypothesis Georges Prat and Remzi Uctum This paper analyses how FF/$, DM/$ and Yen/$ exchange rate expectations form over three and twelve months. The basic principle uses the answers of a group of experts to the monthly Consensus Forecasts survey carried out since November 1989 (average of responses: "consensus"). The results obtained not only show that these "actual" expectations are not rational, but also that, when considered separately, the traditional extrapolative, regressive and adjustive procedures are unable to provide a valid explanation of these expectations. Overall, these results confirm those already obtained using other surveys. The main breakthrough in this work is to show that by calculating a weighted average of the three traditional procedures, we obtain a satisfactory "explanation" of the exchange rate expectations found by Consensus Forecasts for the three currencies and the two time periods considered.

Exchange Rate Forecasting Errors Using Survey Data: Are the Characteristics Homogenous or Heterogeneous? Agnès Bénassy-Quéré and Hélène Raymond Surveys of expectations provide valuable information on speculative exchange rate behaviour. We analyse the properties of forecasting errors for three exchange rates against the dollar (deutschemark, yen and pound sterling) and one exchange rate against the deutschemark (French franc). We use a set of descriptive statistics and econometric tests to identify the main characteristics of the forecasting errors and detect any differences across the forecasting ranges, the currencies and the periods. Three partially intersecting surveys (Economist, Consensus Forecasts and Banque Nationale de Paris) are used to check the universality of the results obtained and to envisage a fourth source of heterogeneity: disparities in the forecasting methods used by the different participants. We conclude that the characteristics of forecasting errors are more heterogeneous in terms of currencies and periods than in terms of forecasting ranges and surveys.