SIMULATION ANALYSIS

(Statistics) A procedure or process by which an Econometric Model (Regression Analysis) is designed to test the effects on outputs of various changes (simulations) of inputs. Simulations of a model might be performed for a variety of reasons, including model testing and evaluation, historical policy analysis, and forecasting. Simulation may be ex post, or simulation beyond the estimation period of the model but for periods of time for which actual data is available for validation purposes. Simulation may also be ex ante which includes forecasting beyond the last actual data point. Therefore, forecasting represents a form of simulation of an econometric model forward in time beyond the model's estimation period.