A thorough reconstruction of the Toyo Keizai Econometric Model of Hiroshima Prefecture is undertaken in the paper. The independence of the regional industry equations of the whole system is corrected. A lack of theoretical explanations of individual equations and the limitation in the number of periods in solving the simultaneous equations are lifted. The effectiveness of taking into account the trend of the changes in the industrial structure of the regional economy and the shifts of parameters of industry equations is evaluated in terms of dynamic multiplier analyses. The importance of having a workable national model as a part of the entire model in constructing a regional model was emphasized. Making use of a regional econometric model, a mechanism of production smoothing by inventory investment was described.