The inclusion of the nominal wage rate is designed to try to pick up the effects of increases in wages and prices on legislated benefits per unemployed worker.

FEDERAL GOVERNMENT SECTOR
There are two estimated equations (29, 30) for the federal government sector: the first is an equation explaining the interest payments of the federal government, and the second is an equation explaining the short-term interest rate. The second equation is interpreted as an interest rate reaction function of the Federal Reserve.
INTEREST PAYMENTS
The current level of interest payments of the federal government is a function of current and past government security issues and of the values of the interest rates at the time of the issues.
THE INTEREST RATE REACTION FUNCTION OF THE FED
In at least one respect, trying to explain Fed behavior is more difficult than, say, trying to explain the behavior of the household or firm sectors. Since the Fed is run by a relatively small number of people, there can be fairly abrupt changes in behavior if the people with influence change their minds or are replaced by others with different views.

POSSIBLE ASSUMPTIONS ABOUT MONETARY AND FISCAL POLICIES
In the exogenous monetary policy case, the main way in which monetary policy affects the economy is by changing interest rates. The main effects of the interest rates on the economy are the direct effects on the consumer expenditures. What this means is that the three instruments of monetary policy – all do the same thing, namely, they affect the economy by affecting interest rates. Using all three different instruments is essentially no different from using one with respect to trying to achieve, say, some real output target.
As to fiscal policy variables, it should be obvious that fiscal policy effects are not independent of what one assumes about monetary policy. For a given change in fiscal policy, there are a variety of assumptions that can be made about monetary policy. Fiscal policy effects are in fact quite sensitive to what is assumed about monetary policy. The reason for this is that the different assumptions have quite different implications for interest rates, and the latter have large effects on the real side of the economy.

GENERAL REMARKS ABOUT THE TRANSITION FROM THE THEORETICAL MODEL TO THE ECONOMETRIC MODEL
The links between the theoretical model and the econometric specifications are closer for the household sector than they are for the firm sector, although the specifications of the main equations for the firm sector are in the spirit of theoretical model.
There is heavy use of lagged dependent variables in the model, and they are very important explanatory variables.
A number of the stochastic equations are not tied very closely (if at all) to decision variables in the theoretical model.