Prediction interval tests are applied to the reduced forms of two quarterly models of the U.S. (the "old" FRB-MIT model and the Michigan model). The results illustrate the range of tests one can perform on an estimated simultaneous equation model. In particular, the tests determine whether ex post forecast errors can be attributed to structural deficiencies of the models. The paper examines confidence regions and other aspects of forecast distributions-comparisons between mean forecasts and nonstochastic forecasts, comparisons between, forecast variances from multiperiod endogenous simulations and those from one period simulations, and comparisons between forecast variances and residual variances.
In "Liquidity Preference as Behavior Towards Risk," Tobin suggests that risk aversion and expected utility maximization can provide a rigorous foundation for an equilibrium demand for money. In Tobin's model, money plays a risk reducing role in individual portfolios. This note considers whether a general equilibrium stochastic model can produce equilibrium yield distributions that allow money to play that role if money does not appear directly as an argument in the utility or production functions of the economy. The model examined, a stochastic production variant of Samuelson's model of overlapping generations, cannot produce such yield distributions.