©international monetary fund. not for redistribution · and developing country blocks built to...

IMF WORKING PAPERThis is a working paper and the author would welcome anycomments on the present text. Citations should refer to anunpublished manuscript, mentioning the author and the dateof issuance by the International Monetary Fund. The viewsexpressed are those of the author and do not necessarilyrepresent those of the Fund

WP/88/23 INTERNATIONAL MONETARY FUND

Research Deparment

MULTIMOD;L A Multi-Region Econometric Model*

Prepared by Paul Masson, Steven Symansky,Richard Haas, and Michael Dooley

March 4, 1988

Abstract

The paper describes a global model consisting of several industrialand developing country blocks built to analyze alternative economicpolicies in a medium-term context. The model, which has been used toconstruct medium-term scenarios for the World Economic Outlook, consistsof aggregate demand and supply relationships, with endogenous determina-tion of interest rates, prices, and exchange rates. Financing flows todeveloping countries depend on expectations of their ability to servicedebt. Expectations of interest rates, inflation, and exchange rates aremodeled in a way that is consistent with the model's solution, and budgetconstraints are imposed on governments.

JEL Classification Numbers:1230; 2120; 3100; 4200; 4300

* The authors are grateful to Ken Cobb and David Hicks for statisticaland programming assistance; Stephen Schwartz helped with the estimation oftrade equations for manufactures. We are also indebted to David Currie,John Helliwell, Guy Meredith, Brian O'Reilly, and to numerous colleaguesfor helpful comments, including especially Charles Adams, James Boughton,Nadeem Haque, Jeroen Kremers, Thomas Mayer, Peter Montiel, and Kenichi Ohno.

©International Monetary Fund. Not for Redistribution

- ii -

Contents

II.

III.

Introduction

1. Purpose of model2. The transmission of policy effects3. Commodity disaggregation4. Estimation strategy

Industrial Countries

1. Aggregate demanda. Consumption behaviorb. Investment behaviorc. Trade volumes

2. Government sector3. Money and interest rates4. Price determination and aggregate supply

a. Domestic output priceb. Trade prices

5. International accounts and exchange rates

Rest of the World

1.2.3.

Financing constraintsThe structure of the aggregate developing country modelThe high income oil exporters

IV. Some Standard Simulations

1.2.3.

Text Tables

1.2.3.4.5.6.7.8.9.10.

Industrial country monetary and fiscal shocksA decrease in the price of oilAn increase in financing flows to developing countries

Implied Long-Run Values and Adjustment SpeedsCoefficient Estimates, Oil Consumption Equations, 1964-85Coefficient Estimates, Commodity Import Equations, 1965-85Coefficient Estimates, Import Volume Equations, 1966-85Shares of Manufactured Export MarketsExport Competitiveness WeightsCoefficient Estimates, Export Volume Equations, 1970-85Coefficient Estimates, Demand for Base Money, 1965-86Pooled Coefficient Estimates, Export Price Equations, 1969-85MERM Weights for Industrial Regions in the Model

Figures

1. Industrial Countries: Plots of Historical Data

Appendix I: Tables of simulation results

Appendix II: Model listing and coefficients

References

1

1234

5

55910171820202325

26

272931

32

323434

8111214151516192426

8a

36

60

85

I.


I. Introduction

1. Purpose of model

MULTIMOD, or MULTI-region econometric MODel, has been designed toimprove analysis of the effects of industrial country policies on majormacroeconomic variables, both in the developed and developing worlds. It isa continuation of modeling work undertaken at the Fund in recent years, inparticular the World Trade Model (Spencer [1984]) and MINIMOD (Haas andMasson [1986]), and it supplements individual country and sectoral models,as well as detailed analysis and monitoring performed by country desks. Thefocus of the model is on the transmission of policy effects, and in thisrespect therefore it accords well with the Fund's surveillance role over thepolicies of major countries. More generally the model can be used to tracethe effects of changes in the external environment facing developingcountries on their economies in the aggregate. To a limited extent, themodel can also be used to evaluate policies that developing countries mightchoose in order to improve their outcomes, for instance, through shiftingdemand away from consumption and toward investment. However, their monetaryand fiscal policy instruments are not at present explicit in the model. Themodel has not been designed to do unconditional or "baseline" forecasts, noris it our intention to use it for this purpose. Instead, the model has beendesigned to utilize a judgemental forecast that incorporates detailedknowledge of country desks as given, and to examine the effects of changesin policies in major countries and other exogenous changes in the economicenvironment on that baseline.

Given the focus on comparative scenarios, the model can be muchsimplified compared to a model that must be used to give baseline forecasts.Simplicity in a model is an important characteristic, since it allows easierunderstanding of the economics behind the model's results; in addition, itallows faster solution of the model, which is important ifcomputer-intensive simulations are to be run, such as those that imposeconsistency between the model's final solution and model-generatedexpectations. _!/ A desire for transparency and tractability also motivateda precursor to this model, MINIMOD, which was simpler in structure andconsisted of only two blocks--the United States and the Rest of the World.The present model, in order to be useful for considering various policycombinations and economic interactions among industrial countries, has morecountry disaggregation; in addition, it attempts to capture characteristicsof developing countries, in particular their financing constraints anddifferent economic structures.

I/ The behavioral relationships in the model, in particular consumptionbehavior and the interaction of wages and price setting, have been estimatedusing the assumption that expectations are formed rationally.Rationally-expected long-term bond rates and exchange rates also appear inthe model, but their values are derived from arbitrage conditions.


2 -

The model at present includes three separate industrial countries-- theUnited States, Japan, and the Federal Republic of Germany--and two blocks ofthe remaining industrial economies, one for the other G-7 countries, labeledthe larger industrial (LI) block (France, the United Kingdom, Italy andCanada), and one for the smaller industrial countries (SI). J/ The rest ofthe world (RW) has been divided into high-income oil exporters (HO) anddeveloping countries (DC). On the developing country side, there is onlyone aggregate region, but its industrial structure is disaggregated betweenproduction of manufactures, of oil and of primary commodities. The regionis assumed to be faced with an endogenous supply schedule for foreign loansthat depends on a forward-looking assessment of developing countries' debtservice capacity. Given other countries demands for the region's exports,imports are assumed to depend on the level of financing available lessinterest payments.

The high income oil exporters 2y are treated separately, in simplifiedform; they are the residual suppliers of oil, whose price is exogenous inreal terms, and their exports of other goods are exogenous. In addition,they are assumed to have explicit import demand equations, instead of aresidual determination of imports from the balance of payments identity.Thus their holdings of reserves are modeled as the residual.

2. The transmission of policy effects

The main linkages among the regions modeled are the endogenousdetermination of prices and volumes of goods trade and the endogenousdetermination of exchange rates and interest rates. In this respect, themodel is a dynamic version of the Mundell-Fleming model, incorporating manyof the extensions to that model that have been developed over the years.That basic framework has proved a useful and robust tool for the analysis ofeconomic policies. _3/ The signs of transmission effects of economic policies,and also the magnitudes of their domestic effects, depend on a number of keyparameters, including the degree of price stickiness, the elasticity ofexpenditure with respect to interest rates, the degree of openness to trade,and the size of trade elasticities. &/ Estimates of these key parameters arenecessary to evaluate the transmission effects, which are calculated bycomputer simulation of the model.

An important linkage between industrial to developing countries is thelevel of capital flows and the interest rate on outstanding debt. Flows of

L< Australia, Austria, Belgium, Denmark, Finland, Iceland, Ireland,Luxembourg, the Netherlands, New Zealand, Norway, Spain, Sweden andSwitzerland.

_2/ Iran, Iraq, Kuwait, Libya, Oman, Qatar, Saudi Arabia, and the United ArabEmirates.

I/ See Frenkel and Razin [1987].

-L' A survey of the transmission effects of policies appears in Boughton andothers [1988].


- 3 -

financing between industrial and developing countries are assumed to dependon the ability of developing countries to service debt. The measure ofservicing ability used is the ratio of debt interest payments, corrected forinflation, to exports. Expectations are assumed to be formed for thatratio: if it exceeds a threshold level imposed on the model, then additionalfinancing will not be demanded or supplied. If it is less than thethreshold, then financing will be available in an amount that depends on thedifference between the expected level and the threshold level.

Developments in industrial countries influence the expected value ofthat ratio, since the level of interest rates on DC debt appears in thenumerator, and demand for the developing countries' exports affects bothprices and volumes in the denominator. Increased developing country exportprice or volume will lead to greater financing flows from industrial todeveloping countries, and the greater the level of financing, the largerwill be DC imports from the industrial countries; some of which will beassociated with increased consumption, but the remainder, by increasing DCinvestment, will affect the capital stock and future growth prospects.Increased demand by industrial countries for manufactures produced bydeveloping countries will first mainly lead to increases in the volume of DCexports, and over time in the price of those exports, while an increase inindustrial country demand for primary commodities will lead in the firstinstance to an increase in their price, and only later to an increase inoutput. Conversely, any increase in protectionism in industrial countries,by reducing the demand for DC exports, will lead to smaller financing flowsand less capital formation in developing countries.

3. Commodity disaggregation

Trade is disaggregated into three different types of goods: oil,primary commodities, and manufactures. Trade in oil is treated separately,and it is assumed to be subject to one world price, fixed exogenously inreal terms. J/ All countries and regions other than the high-income oilexporters have variables for oil production and domestic consumption, andfor exports and imports of oil; typically, production is exogenous for theindividual producer, while a domestic demand equation determines consumptionand either imports or exports residually. \J For both the high income oilexporters and the DCs, production and exports are also endogenous, and aredetermined such that world demand and supply of oil are equal; increases ofdemand are shared between them in a fixed proportion. Inventories of oil arenot explicit in the model; changes in inventories are implicitly included inconsumption.

Primary commodities produced by developing countries are assumed tohave a price that is perfectly flexible and moves to clear the market. Anincrease in the relative price (and implicitly, in the profitability ofproduction) of primary commodities will induce a shift of resources into

_!_/ Using as deflator a weighted average of industrial country output prices.

]J The use of oil as an input into production is not made explicit in themodel; such use is included with consumption.


- 4 -

this sector, increasing the quantity produced and eventually bringing aboutan increase in capacity and supply.

The composite manufactured good is assumed to be produced by allregions, and imports and exports of all regions except the high income oilexporters are endogenous to the model. J/ Furthermore, each region's (orcountry's) manufactured good is assumed to be an imperfect substitute forother regions' manufactures, and relative prices of the differentmanufactured goods explain imports and exports. Base period export sharesare used as weights for the calculation of relative prices. There is nosingle price of manufactures, and prices in each region move sluggishly.

4. Estimation strategy

Unlike MINIMOD, whose parameters were not estimated, but were derivedby simulation from an existing multi-country model, the parameters of themodel described here were to a large extent estimated using historical data.The difference in approach is the result of different requirements on themodels. One of the uses of the current model is to help generatemedium-term scenarios in conjunction with the World Economic Outlook, and soit is convenient that the model explain data series used in thatpublication. Differences in data definitions may make the outputs ofexisting models produced outside the Fund inconsistent with WEO data. Inaddition, the coverage of regions--all the industrial countries and thedeveloping countries--goes beyond many existing multi-country models, sothat necessarily many parameters could not be taken directly from thosemodels.

In estimating model coefficients, a high value is placed oncomparability across countries and regions, at least as applies toindustrial countries. Rather than specifying and estimating individualcountry models independently, in many cases a given equation was estimatedfor the five industrial regions using pooled cross-section, time seriesestimation. This allowed imposition of common coefficients where the datawarranted it. The aim was to avoid differences in country model behaviorthat were the result of arbitrary differences in specification, rather thanparameter differences that were statistically significant.

Therefore, common parameters occur quite frequently in the model, as isdescribed below. Nevertheless, even with common behavioral parameterscountries will respond differently to changes in exogenous variables,because of different structural features. For instance, the FederalRepublic of Germany exhibits lower fiscal multipliers than the United Statesin large part because of a greater degree of openness, as exhibited by ahigher import/GNP ratio. Similarly, the levels of net foreign assets anddifferent trading patterns in the various countries will lead to differentmacroeconomic responses to the same shock. In addition, there is an

l_l The primary commodities produced and exported by industrial countries--including such commodities as cereals and minerals, which are important fora number of countries--are included implicitly in the composite good,labeled "manufactures," that is produced by industrial countries.


- 5 -

asymmetry in the importance of countries in international monetaryarrangements; foreign assets and liabilities are assumed to be denominatedin dollars, and to pay a U.S. dollar interest rate.

II. Industrial Countries

1. Aggregate demand

a. Consumption behavior

Consumption behavior in each country or region is modeled in a fashionthat reflects the correlation between current income flows and consumption,as well as the longer-term relationship between consumption and permanentincome or wealth. I/ The effect of current income flows can be explained bycapital market imperfections, taking the form of constraints on borrowing bysome households. The consumption equation therefore reflects the assumptionthat some consumers are only constrained in the level of their consumptionspending by their net wealth, while others are also liquidity constrained.The measure of wealth used is financial wealth plus the present discountedvalue of expected future income, where income is defined as net nationalincome (the value of output domestically produced, net of factor paymentsabroad) less taxes: it thus includes both physical capital and humancapital, and is the net wealth of the private sector.

In calculating wealth a choice must be made of the appropriate rate ofdiscount used by consumers. In the model, it is assumed to be the same asthe government's. 2/ As a result, expected increases in taxes offsetincreases in private holdings of government bonds in the calculation ofwealth.

In the definition of wealth, therefore, neither bonds nor taxes appearsexplicitly since the present value of taxes equals the stock of bonds plusthe present value of government spending. Instead, wealth equals thepresent value of expected net national income minus the government'sspending, plus the monetary base and net claims on foreigners. As a result,whether government spending is financed by taxes or bond issues has noeffect on wealth, as calculated here. However, since current taxes appearin disposable income, what Barro [1974] has termed RicardianEquivalence--the equivalence of bond and tax financing--will not hold, asthe liquidity constrained consumers will consume less if current taxes rise,reducing their disposable income. _3/

JY See Hall [1987] for a survey of recent empirical evidence.

_2/ Such an assumption is only strictly appropriate if consumers haveinfinite horizons, for instance, because they care about the utility oftheir descendants. In some models, e.g. Blanchard [1985], the discount rateof the private sector is higher by a fixed amount, equal to the probabilityof death.

V The importance of liquidity constraints in causing Ricardiannon-Equivalence has been emphasized by Poterba and Summers [1987]. See alsoHaque and Montiel [1987].


- 6 -

As mentioned above, it is assumed that the private sector discounts thefuture at the same rate as the government, i.e. using the real governmentbond rate. However, any reasonable historical measure of real interestrates--either long or short--gives some years in the 1970s where the realinterest rate is negative; clearly that rate cannot be used to calculatediscounted present values. On the other hand, if we constrain the real rateto be a parameter, e.g. to equal the average over some historical period,then interesting valuation effects are lost. The prevailing ex ante realshort rate is used to discount next period's flows, but a discount rate thattends to return to the historical average real rate is applied to subsequentperiods' flows; the speed of adjustment of the discount rate is estimatedusing an autoregression on historical data.

The determination of wealth can be derived as follows. The startingpoint is the definition of net wealth of a representative consumer as beingthe sum of financial assets per capita and the discounted present value offuture income:

(1)

where M is outside money, B holdings of government debt, NFA net foreignassets, P the absorption deflator, r the short-term real interest rate, pthe relative price of output and absorption, Y per capita net nationalproduct, and r is the tax rate. Now the government's budget constraint isgiven by the following equation, provided that discounted interest paymentsgo to zero so that e B*B(s)^Oass^=°:

(2)

where g is the share of government spending on goods and services in netoutput. Substitution of (2) into (1) eliminates B and r:

(3)

Suppose that p(s), r(s), Y(s), and g(s) are all expected to stayconstant at their current values, that is p, r, Y, and g, respectively.Then equation (3) reduces to

(4).

Such an assumption is clearly too restrictive. In general, however, ifthose variables take arbitrary paths then we cannot collapse the integral in(3). We suppose that the real interest rate, the terms of trade, realoutput, and the share of government have normal values that correspond to

long-run equilibrium, equal to r, p, Y, and g, respectively. For output,the long-run equilibrium value is clearly potential output, and hence it is

convenient to work with the rate of capacity utilization, CU - Y/Y. Supposethat r, p, CU, and g move gradually from their current levels to theirlong-run equilibrium values:


- 7 -

(5)

This implies that their future paths can be described by the following:

(6)

and similarly for the other variables. Let the integral in equation (3) becalled V. We linearize around the normal values, in the following way:

(7)

Given equations (5), the integrals in (7) can be collapsed to give thefollowing:

/

(8)

Therefore, the normal value of wealth is modified by the deviation ofthe variables from their normal levels, and the faster they are expected toreturn to their normal levels, the less effect they have on current wealthcalculations. Since the adjustment equations above are formulated incontinuous time, the speeds of adjustment can approach infinity, in whichcase (8) reduces to

(9)

The values of a, ft, 7, 6, as well as r and g are estimated usinghistorical data, using autoregressions over the period 1965-85. Aregression of the form

(10)

was run in order to infer the long-run value b/(l-a) and the speed ofadjustment 2(l-a)/(l+a) corresponding to the parameters of (5). \J It wasfirst verified that the variables considered above did seem to bestationary; no formal statistical tests were performed, but Figure 1suggests that this is indeed the case. Capacity utilization, which iscalculated in the data to be the ratio of actual output to its trend value,has a normal value of unity, which was imposed, as was the value for theratio of the output to the absorption price (both are indices, equal to 1.0

\j Equation (10) is viewed as a discrete approximation to differential"equation (5). See Wymer [1972].


- 8 -

in 1980). The speeds of adjustment and long-run values implied by theestimated autoregressions are given in Table 1 below.

Table 1: Implied Long-Run Values and Adjustment Speeds

Country Real rate Rel. price

r a P ft

Output Govt. spending

CU 7 g 5

United States

Japan

Germany

Larger Indus.

Smaller Indus.

.027

.009

.027

.017

.010

.138

.361

.688

.305

.471

1

1

1

1

1

.0

.0

.0

.0

.0

.165

.006

.060

.391

.055

1

1

1

1

1

.0

.0

.0

.0

.0

.558

.414

.556

.190

.131

.225

.115

.225

.217

.219

.236

.236

.236

.236

.236

The autoregressions imply a much faster return to normal capacityutilization rates than for relative prices; hence, deviations from normalrelative prices have a larger effect on calculated wealth. Equilibrium realshort-term interest rates were calculated from the regression coefficients,as described above; surprisingly, they differ considerably across countries.Normal shares of output appropriated by governments, g (note that: transfersare excluded here), are remarkably similar for the different regions, withthe exception of Japan. As noted above, there is also no evidence of trendover the period, suggesting that government spending and net nationalproduct are cointegrated. When estimated separately, speeds of adjustmentto a normal government share were poorly determined; thus, a pooledtime-series cross-section constrained the speed to be the same.

Using the wealth measure defined above, a consumption equation wasestimated in error-correction form _!/ that constrained consumption to increaseproportionately to increases in wealth in the long run. This specificationallows the speed of adjustment to be estimated freely, but ensures thatsteady-state consumption equals some constant times wealth. The equationalso includes the change in the real long-term interest rate AR (expressedas a decimal fraction) and the change in the log of disposable income,Alog(YD). The equation was estimated using instrumental variables, _2y with

l_l See Davidson and others [1978].

2/ Instruments used were the logs of the following variables: thegovernment's share of income, real money balances, and lagged GDP and thecapital stock.


Figure 1

Industrial Countries: Plots of Historical Data

US - - JA GR U -- SI

8a


- 9 -

pooled data over 1970-85; individual coefficient restrictions were notrejected at the 5 percent level. _!/ The estimated equation has thefollowing coefficients (t-ratios in parentheses; constant terms, whichdiffer across countries, are not reported):

(ID

In the long run steady state, the change in R is zero, and consumption anddisposable income settle down to a common growth rate. Therefore, equation(11) implies that the level of consumption in each country or region i willbe related to wealth in the following way:

(12)

The constant term K in (12) depends on the country's intercept in (11) as

well as the steady-state rate of growth, which is equal to the exogenouscombined rate of growth of the labor force and technical progress.

b. Investment behavior

Investment is modeled as a gradual adjustment to an optimal level forthe capital stock; in the presence of adjustment costs, the adjustment isspread over time. _2/ As is the case for consumption, this process is modeledas an error correction mechanism. The optimal stock of capital is derivedfrom the production technology: the profit-maximizing level of capital willequate the marginal product of capital to the user cost of capital, UC. Inthe simple Cobb-Douglas technology assumed here, the marginal product ofcapital is just the level of output times the share of capita]^ (/9) , dividedby the capital stock. Therefore, the optimal capital stock K is given by

K* - /9 GDP/UC (13)

In the models for industrial countries, the user cost is defined in away that takes into account economic depreciation of the capital stock aswell as the tax treatment of depreciation and the non-neutrality of the taxsystem with respect to inflation. _3/ Such a measure of user cost gives valuesfor UC for several countries that are close to zero in some periods, or evennegative (for instance, for the United Kingdom during the 1970s). As aresult, equation (13) does not give a useful measure of the desired level ofthe capital stock. Given measurement problems, the effect of the user coston capital was estimated freely, instead of imposing the elasticity of minusunity implied by (13).

JV However, the unrestricted regressions have significantly lower residualsum of squares than equation (11) , which imposes all of the restrictionsjointly.

_2/ Gould [1968] gives a treatment of optimal capital accumulation in thepresence of adjustment costs. See Clark [1979] for a comparison ofinvestment equations estimated for the United States.

_3/ See, for instance, Brayton and Clark [1985].


- 10 -

The adjustment to the optimal capital stock is modeled as anerror-correction mechanism in log form. This permits imposing long runhomogeneity of the level of capital with respect to output as is implied by(13) provided steady states with the same UC are compared. There is also aterm that captures a short-run accelerator effect of current changes inoutput on investment.

Unfortunately, adequate data for the real net capital stock, excludinggovernment capital, were not available for all industrial countries.Consequently, pooled estimates were obtained for six of the G-7countries--all but Italy--and for the SI region. The same coefficients(except for the constant term, which was set equal to the average for theUnited Kingdom, France and Canada) were imputed to Italy. A dummy variablewas included to allow for a shift in investment behavior after the first oilprice shock: it is zero before 1974, 1 afterwards. The estimated equationwas the following (separate intercept terms are not reported), whereinstrumental variables were used to account for the joint endogeneity ofinvestment, GDP and the user cost: J-/

(14)

In the long-run steady state, K and GDP settle down to constant growth ratesthat are determined by the (exogenous) rates of growth of labor force andtechnical progress, and are reflected in the constant terms. From (14), inthe long run K is therefore given by

+ a constant (15)

c. Trade volumes

For the industrial countries, trade flows are disaggregated as follows.Oil trade is treated separately from other goods; each country's oil exportsare exogenous, while imports of oil are determined residually, as thedifference between domestic production (which is exogenous) and domesticconsumption plus exports, if any. Domestic consumption of oil depends onrelative prices and domestic activity. Industrial countries also importprimary commodities from developing countries. _̂ / Finally, each industrialcountry produces a manufactured good, (as do developing countries); eachmanufactured good is differentiated from other countries' goods. For eachcountry, there is an equation for the total volume of manufactured importsand one for the total volume of manufactured exports.

_!/ Instruments used were real money balances, real government spending, therate of change in the price of oil, DUM74, lagged capital stocks and laggedoutput.

_2/ As mentioned above, their commodity imports from other industrialcountries are included with manufactured imports.


- 11 -

In modeling oil, it is assumed that there is one world price; thisassumption is realistic for world trade but less so for domesticconsumption. Consumption equations were estimated with pooled data, and thesame long-run price elasticity was imposed, though in the short run, priceelasticities are allowed to differ in order to permit different short-runresponses of domestic prices to changes in the world price. An error-correction equation was estimated that imposed a unit elasticity withrespect to GDP in the long run, as well as a short-run effect of activity onoil consumption, with coefficients differing across countries. Since oilserves as an input into production, GDP rather than domestic absorptionserved as the activity variable. For manufactured imports, in contrast,domestic absorption is the activity variable in the equation (see below).The form of the equation for oil consumption was the following, where therelative price RPO is the ratio of the domestic price of oil to the GNP/GDPdeflator, and all variables are in logs:

(16)

Estimated coefficients are presented in the following Table; coefficients aand ft are constrained to be the same for all countries, as unrestrictedcoefficients showed a remarkable degree of uniformity across countries.

Table 2. Coefficient Estimates, Oil Consumption Equations, 1964-85

(t-ratios in parentheses)

Country

United States

Japan

Germany

Larger Indus .

Smaller Indus.

K

-.2569(3.61)

-.3711(4.61)

-.2627(3.14)

-.6660(6.33)

-.2552(3.37)

a

-.0502(8.88)

-.0502(8.88)

-.0502(8.88)

-.0502(8.88)

-.0502(8.88)

ft

.0744(2.91)

.0744(2.91)

.0744(2.91)

.0744(2.91)

.0744(2.91)

1

.7502(2.87)

1.545(7.31)

1.529(5.20)

2.000(4.96)

0.996(2.44)

6

-.0488(2.21)

-.0203(1.03)

-.0988(5.04)

- .0410(1.98)

-.0837(4.17)

R SER

.838 .029

The estimates for a and 5 imply strong and statistically significanteffects of relative prices on oil consumption. The long-run relative priceeffect, equal to a/ft, is about -0.7, but it has a mean lag of about 10


- 12 -

years. Short-run elasticity effects of economic activity on oil consumptionare greater than unity for all regions except the United States and thesmaller industrials; in the long run, the elasticity is unity, as discussedabove. The short-run relative price elasticities are very small.

Imports of oil by each industrial country are determined residually, asthe difference between consumption and production. For those countries thatproduce oil, implied elasticities of oil imports are considerably largerthan those for consumption, since production is exogenous. For instance, ifoil imports are one quarter of consumption, then the elasticity of importswith respect to either price or GNP will be roughly four times that forconsumption, reported above.

As is the case for oil, one world price is assumed to prevail forprimary commodities. Primary commodity imports are also modeled inerror-correction form, but here the restriction that demand is unit elasticwas rejected by the data. Writing RFC for the relative price of commoditiesand domestic output, i.e. the world price of commodities converted todomestic currency and divided by the GNP/GDP deflator, the equation forcommodity imports ICOM can be written as follows:

(17)

Since the price of commodities moves to clear the market, it is clearlyendogenous, and ordinary least squares are inappropriate. Instead,instrumental variables was used; GDP and the GDP deflator in all of theindustrial countries were instruments. Results are presented in Table 3.

Table 3. Coefficient Estimates, Commodity Import Equations, 1965-85.(t-ratios in parentheses)

Country

United States

Japan

Germany

Larger Indus .

Smaller Indus .

K

-3.68(3.8)

-1.15(1.1)

-2.23(3.3)

.687(0.9)

-2.07

Q

-.158(1.6)

-.786(2.6)

.160(1.1)

-.179(1.6)

-.256

£

.753(4.1)

.128(0.5)

.463(3.9)

.151(2.6)

.572

7

-.785(4.2)

-.562(2.6)

-.411(2.5)

-.594(2.6)

-.708

6

-.640(6.4)

-.634(3.1)

-.442(4.2)

-.516(6.2)

-.515

e

1.96(4.0)

-.141(0.2)

1.86(4.1)

2.40(3.0)

2.21

R2

.711

.426

.779

.694

.641

SER

.048

.067

.038

.036

.035(2.7) (1.4) (3.0) (2.7) (4.3) (2.9)


- 13 -

Coefficients vary considerably across countries and regions; however,relative price and GDP elasticities are generally well determined. Only theestimates of e for Japan and a for Germany differ from their a priori signs;neither is significantly different from zero, however. Estimates oflong-run price elasticities, equal to 0/7, are less than unity for allcountries except Japan; estimates of long-run GDP elasticities, equal to-/V7> range from .25 to 1.1.

Manufactured trade equations are modeled in a conventional fashion,using a base period share matrix to weight up the growth in foreign marketsand competitors' prices. _]•/ Import volumes are assumed to depend on thelevel of domestic absorption, A, as well as on the ratio of the import priceto the non-oil GNP deflator. Export volumes depend on a foreign marketsvariable, defined as the weighted sum of other countries' imports (withweights that are equal to base period shares of the home country's exportsin other countries' imports) and on the ratio of the home country's exportprice to other countries' export prices. This latter variable incorporatesother countries' export prices using a double weighting scheme, reflectingboth the importance of all other markets in the home country's exports andthe market share of its competitors in those markets.

The equations that were estimated for import volumes have the followingform, with lags on relative prices and absorption included where dictated bythe data. A time trend is also included in some equations, to capturesecular changes in trade liberalization and hence in world trade that is notrelated to trend growth in absorption or output.

(18)

Coefficient estimates are presented in Table 5 below.

The import equations have long-run elasticities with respect toabsorption that are constrained to be equal to unity (this constraint beingaccepted by the data), in most cases with adjustment estimated to take placeduring the first year, the exception here being the Larger Industrial group.Price elasticities are equal to the following values, after lags are takeninto account: -0.8 (US), -1.4 (JA), -0.7 (GR), -1.6 (LI), -1.7 (SI).

I/ This approach is standard in multi-country models. It has been used byTap1in [1973], Samuelson [1973], Deppler and Ripley [1978], and Spencer[1984]. See Hickman [1973] and Amano [1980] for a discussion of alternativespecifications.


- 14 -

Table 4. Coefficient Estimates, Import Volume Equations, 1966-85(t-ratios in parentheses)

Country

United States

Japan

Germany

Larger Indus .

Smaller Indus

K

-3.49(74)

-1.07(3.5)

-2.15(51)

-.424(2.2)

-1.31(53)

a ft

1.0 0a a

1.0 -.582a b

1.0 0a a

.294 0(2.5) a

1.0 0a a

7

-.801(8.3)

-.592(3.3)

-.740(5.2)

-.483(2.0)

-1.70(8.8)

H

.036(17)

0a

.031(16)

0a

0a

4> R2

0 .946a

.582 .940(5.1)

0 .994a

.706 .221c

0 .800

SER

.040

.096

.030

.049

.102

Notes: a Constrained to a constant.b Constrained to be equal to -<f>.c Constrained to equal 1-a.d First order serial correlation correction is -.50.

Export volume equations depend on weighted foreign demand for imports(FM) and the log of the export price relative to competitors' export prices,(REER). These variables are defined as follows:

(19)

(20)

where E are base period exchange rate indices, and A measure theij ij

importance of country j in the exports of country i. The export sharematrix s is given in Table 5. The double weighting scheme in (20) can be

condensed to a single set of weights, and the equation rewritten as follows:

(20')

The matrix of weights w is given in Table 6 below.


- 15 -

Table 5. Shares of Manufactured Export Markets

ExportingCountry

United States

Japan

Germany

Larger Indus .

Smaller Indus .

Rest of World

sum

US

--

.2566

.0916

.3198

.0832

.2489

1.0000

Importing Country

JA GR LI SI

.3516

--

.0872

.1295

.1037

.3279

1.0000

Note: The figures give the share ofexports to the country in thetotal imports, if measurement

United States

Japan

Germany

Larger Indus .

Smaller Indus.

Rest of World

Table 6.

US

--

.1852

.2442

.1845

.2531

.1446

.0769 .2685 .1150

.0606 .0533 .0693

.2799 .3655

.3533 -- .3721

.3960 .3054

.1132 .0929 .0781

1.0000 1.0000 1.0000

the country in the stub inheading (also equal to thaterrors are ignored) .

RW

.2187

.2254

.1395

.2689

.1475

--

1.0000

the totalcountry ' s

Export Competitiveness Weights

JA

.1635

--

.1471

.2246

.1512

.1675

GR LI SI

.2635 .2402 .2450

.1863 .3496 .1722

.3293 .1715

.2658 -- .1899

.2004 .2731

.1906 .3101 .1873

RW sum

0878 1.0

1067 1.0

1080 1.0

1351 1.0

1222 1.0

1.0

The variable REER for a given country compares its manufactured exportprices (in logs) to a weighted average of other countries' prices (in logs),converted to a common currency, with the weights appearing in the


- 16 -

appropriate row of Table 6. It should be emphasized that this measure ofthe real effective exchange rate excludes competition in the home market;thus it is not a comprehensive measure of competitiveness. Each country'sexport equation has the following form:

log(XM) - K + e log(FM) -I- v REER + 4> REER (21)

Coefficient estimates are given below.

Table 7. Coefficient Estimates, Export Volume Equations, 1970-85(t-ratios in parentheses)

Country

United States

Japan

Germany

Larger Indus .

Smaller Indus

Rest of World

K

1.16(7.8)

-1.76(3.6)

.910

(11)

.911(5.8)

1.60(24)

-.764(1.4)

t

.770(28)

1.389(11)

.802(64)

.849(31)

.775(64)

1.247(11)

V

-.521(7.4)

-.675(3.6)

-.325(7.4)

-.270(2.3)

-.281(6.7)

-.734(3.4)

*

0a

-.389(2.0)

0a

0a

0a

0a

R2

.983

.991

.996

.993

.997

.938

SER

.034

.038

.014

.022

.014

.071

Notes: a constrained to equal zero.b Serial correlation correction, p - .70.

The export equations give conventional estimates, with foreign marketcoefficients near to unity. To the extent that these elasticities differfrom unity, these equations will not be consistent with a steady state withreal growth, since a country's export share of foreign markets will notsettle down to a stable ratio. The sample period however produces estimatesthat differ significantly from unity, and alternative specifications withtime trends to capture changes in market shares did not give satisfactoryresults. Fortunately, elasticities do not differ so greatly from unity asto give nonsensical results when the model is simulated, even as far as 30years into the future; nevertheless, further experimentation with


- 17 -

specifications that allow for transitory changes in market shares,converging to a stable long-run value, is planned.

Long-run effects of relative prices on manufactured exports differconsiderably across countries, ranging from -0.3 for Germany and the LIand SI regions, to -0.5 for the United States and -1.1 for Japan. Priceelasticities may seem low, but it must be remembered that the foreign marketvariable itself is implicitly a function of relative prices, since it is aweighted average of imports. Therefore, the Marshall-Lerner conditions areeasily satisfied, at least for manufactures.

2. Government sector

The government sector does not include any true behavioral equations;however, in addition to identities that define the budget balance and totalexpenditures, there are technical relationships and simulation rules. Eachcountry's equation for taxes (net of non-interest transfers) relates taxreceipts to a tax rate and a tax base, which is approximated by Net NationalProduct plus interest receipts. J/ In addition, in simulation tax rates arechanged to prevent the stock of government debt from rising without boundrelative to GNP.

The equation for tax rates is a simulation rule with imposedparameters; they have not been estimated from historical data. Givenexogenous government spending, the logic of the government's intertemporalbudget constraint implies that tax rates must eventually be increased,provided that the real interest rate exceeds the real growth rate of theeconomy, "i/ If tax rates are not increased, then the government bond stockwill increase without bound relative to GNP, as the government will beforced to borrow more in order to service the increased debt. If thegovernment bond stock does settle down at a higher level, then even for anunchanged primary (i.e. non-interest) deficit, higher tax rates will beneeded to service the higher debt.

A feedback rule was specified for tax rates that makes them respond tothe government debt/GNP ratio and to the change in the ratio. Parameterswere chosen on the basis of earlier work that studied the dynamics ofMINIMOD, and formulated rules that made the model stable. 3/ Such a stabilityanalysis has not yet been performed with the present model; this remains aproject for further work.

JY In reality, tax regulations are extremely complicated, and tax ratesdiffer for different forms of income. The simplification that is used inthe model will be valid provided the various forms of income move together.

"1] For a discussion of the implications of the government's intertemporalbudget constraint, see for instance Buiter [1984].

]>_l See Masson [1987]. There is empirical evidence in favor of such rules;see Kremers [1987].


- 18 -

3. Money and interest rates

As In most theoretical macroeconomic models, monetary policy inMULTIMOD is specified in terms of the supply of money, in particular themonetary base. This, together with the demand for base money, determinesthe short-run interest rate that clears the money market. Short-terminterest rates in turn have an effect on long-term rates and the exchangerate. The supply of money is however not exogenous; instead, there is areaction function for the central bank's behavior. What is exogenous is atarget for the money supply; central banks are assumed to move short-terminterest rates to close a gap between the target and the actual stock ofmoney.

Demand equations for real money balances (deflated by the absorptionprice) were estimated as a function of real GNP and the short-term nominalinterest rate. Base money includes both currency and the reserves ofcommercial banks held with the central bank. Demand for reserves thereforeincludes the demand derived from required reserves on the part of commercialbanks, which depends on demand for their liabilities and the reserverequirement applied to them, plus commercial banks' demands for excessreserves. Each of these components may be expected to vary with the levelof economic activity and to be sensitive to interest rate fluctuations.Money balances may also adjust with a lag; this is captured by a laggeddependent variable and lagged Independent variables, where significant: J-/

(22)

Results of this common specification are presented in Table 8. Tests wereperformed of equation (22) relative to more general specifications withadditional lags; these tests accepted the more parsimonious specification in(22). Lagrange multiplier tests failed to find evidence of serialcorrelation up to fourth order (see Hendry [1987]).

In many countries, the demand for money has been affected by financialinnovations and deregulation that have occurred in the 1980s. 2yConsequently, it is of interest to test whether the demand functions arestable when the recent period is compared with earlier data. In the firstpart of Table 8 above, the final column gives a test for stability, wheneach equation is estimated over 1965-85 (one fewer observation) and used toforecast 1986. If the figure in the final column is greater than thecritical value of the x distribution, which at the 5 percent level ofsignificance (with one degree of freedom) is 3.8, then the hypothesis of

\J In practice, only lagged interest rates and the lagged dependent variablehad significant explanatory power.

2/ See, among other references, Simpson [1985] and Suzuki [1984].


- 19 -

parameter stability can be rejected. It can be seen that only for theUnited States does parameter instability seem to be present. !_/

Table 8. Coefficient Estimates, Demand for Base Money, 1965-86(t-ratios in brackets)

Country

United States

Japan

Germany

Larger Indus .

Smaller Indus .

K

.408(0.6)

-1.127(3.3)

-.215(0.4)

-1.017(2.3)

-.357(0.2)

a

.215(3.8)

.456(4.0)

.249(1.5)

.393(5.2)

.063(0.4)

ft

-.011(3.0)

-.009(1.4)

-.005(0.7)

-.013(3.4)

-.010(2.3)

1

-.004(0.9)

-.023(3.1)

-.005(0.8)

-.010(2.4)

-.004(1.0)

Long-Run Effects of Explanatory

Country

United States

Japan

Germany

Larger Indus .

Smaller Indus .

IncomeElasticity

0.56

1.26

0.82

1.19

0.30

Note: for the Smaller Industrials,

5 R2 SER

.617 .722 .028(4.0)

.638 .989 .040(6.6)

.695 .865 .061(3.9)

.670 .916 .027(7.5)

.797 .937 .030(3.8)

Variables

Interest RateSemi -Elasticity

-.040

-.088

-.031

- .068

-.069

2X

13.7

0.1

0.0

0.5

3.7

the sample period is 1966-86.

_!_/ More complete tests of parameter stability were also performed; startingfrom an equation estimated over 1965-77, additional observations were addedone year at a time, and parameters tested for stability using PC-GIVE (seeHendry [1987]). Such a procedure also suggests that demand for base moneyis unstable over this period only for the United States, and only since1984. It should be noted however that these tests are only asymptotic.


- 20 -

Concern about the effect of financial Innovation on money demand hasled a number of central banks to abandon or de-emphasize monetary targeting.It is also true that even during the historical period, few central bankstargeted the monetary base (the principal exception being the FederalRepublic of Germany). Though over some periods and for some countries,other variables, for instance exchange rates, have clearly influencedmonetary policies, the approach implemented in the model--imposing areaction function in which short-term interest rates move to achieve moneysupply targets--has the advantage of simplicity; it also permits "moneysupply changes" to be simulated. Despite the deemphasis on monetarytargeting, it is useful to associate a neutral stance of monetary policywith an unchanged money supply. An obvious alternative, making interestrates exogenous, provides no nominal anchor for the simulations, and as arule for monetary policy in the face of shocks it is clearly inadequate.

Another key relationship in this sector is an arbitrage conditionbetween short-term and long-term interest rates. This equation constrainsthe return on short-term bonds (RS) and the expected return on long-termbonds (RL, plus expected capital gains) to be equal. By assumption,long-term bonds are consols, _!/ so that the price is the inverse of the bondrate; consequently the expected rate of capital gain is just -(RLE - RL)/RL,where RLE is the bond rate expected for next period. The equation can thusbe written as

RS = RL -(RLE-RL)/RL (23)

In the consistent expectations solution to the model, the expected long-bondrate is equal to its actual value next period. Repeated substitution canthen be performed using (23) to express the current long rate as a functionof expected future short rates. Thus (23) embodies a pure expectationstheory of the term structure, and there is, for instance, no direct effectof the stock of government debt on interest rates. Though it seems likelythat when the stock of government debt becomes very large relative to GNP,interest rates would tend to be higher, regressions on recent historicaldata have had difficulty in isolating such an effect, probably because debtratios have exhibited insufficient variability.

4. Price determination and aggregate sut

a. Domestic output price

The key behavioral relationship in this sector is a semi-reduced-formequation for the price of output--the non-oil GNP deflator. This equationcaptures price setting behavior by firms and wage setting in the context ofoverlapping contracts. Price setting by firms is assumed to depend on thelevel of capacity utilization, while wage bargains depend on the degree of

_!_/ The price of a consol, or perpetual bond, in fact behaves quite similarlyin reponse to changes in interest rates to that of a bond with maturity of10 years or more, which is the relevant muturity of the long-term bondswhose rates are included in the model.


- 21 -

slack in labor markets as well as on the expected real wage. Employment andwages are not modeled explicitly here; instead, they are substituted out,and the level of capacity utilization is used to proxy labor marketconditions. ]J Capacity utilization CU is calculated as the ratio ofactual output, as determined by demand, to capacity output, as given by aCobb-Douglas production function of capital and a trend term that capturesboth labor force growth and technological progress. As Gordon [1985] shows,an equation for the rate of change of output prices can be derived thatdepends on expected inflation, on the level of capacity utilization, and onthe change in capacity utilization.

Suppose that wage bargaining is characterized by overlapping contracts,ranging in length from 1 period to infinity, and that furthermore thedistribution of contracts remains constant over time. Let us call f

i

(i-0,1, ...) the proportion of contracts that were negotiated i periods agothat are in force at any given time. When any contract is negotiated, thewage is determined on the basis of current and expected changes in consumerprices (not output prices) over the term of the contract, and on currentlabor market conditions, as well as trend productivity growth a. WritingAw(i) as the annual rate of change in the wage negotiated i periods ago,TT the prevailing rate of inflation, and if* the annual rate of inflationt~i fc~i

expected at t-i to prevail over the life of the contract, we thereforesuppose that

(24)

Implicit in this formulation is that there is no front-end loading of wageincreases: they occur smoothly over the life of the contract. _2/ It is alsothe case that expected inflation is assumed to be at the same rate, and notto be dependent on the length of the contract, but only when theexpectations are formed. We further suppose that output supply is based onimperfect competition among firms that set prices on the basis of a flexiblemarkup over variable costs, in this case just wages adjusted forproductivity increases. The markup also depends on the rate of capacityutilization. Now labor costs are a weighted average of the variouscontracts in force. Calling v average unit labor costs (in logs),

(25)

and the log of the non-oil output price p (in the model listing, this

_!/ Capacity utilization is a better measure of the cyclical position of theeconomy than the unemployment rate, because it is not distorted bydemographic factors and changes in unemployment benefits that have changedthe "natural rate of unemployment."

2J This model differs from that in Taylor [1980] because it does not allowfor emulation of wage increases; however, it allows for a distribution ofcontract lengths and for expected inflation, as well as a price equationthat responds to excess capacity.


- 22 -

variable has the name PGNPNO) is given by

(26)

Differencing (25) and (26) with respect to time, and substituting into (24),we can write

(27)

If the following assumption is made about the distribution ofcontracts, then (27) can be considerably simplified. J/ Let the proportion ofcontracts negotiated i periods ago be (l-A)A . Then if L is the lagoperator, (27) can be rewritten as

(28)

which gives an equation that can be estimated in the form

(29)

where e is an error term.

Estimated values are given below. Instrumental variables were usedsince both the capacity utilization rate (it appears in log form in theregressions) and expected inflation are likely to be correlated with theerror in (29). 2/ Time series regressions were pooled, ̂ / and allcoefficients constrained to be the same, since the constraint of commoncoefficients was not rejected by the data. The constant term was omitted,as implied by (29). An iterative estimation procedure was used to impose theconstraint on the coefficients for the lagged dependent variable and on thelagged change in capacity utilization. In particular, starting from aninitial estimate for say a regression of the form

(30)

was run, where DCU — and where coefficients were

constrained to be the same for all countries. Using the estimated value fora , a new estimate for was calculated, yielding a new series for DCU, and

equation (30) was reestimated until parameter values converged. Theresulting estimate for a , equal to .11, was insignificant, with a t-ratio

I/ For a model that makes a similar assumption concerning the distributionof contract lengths, see Calvo [1983].

2/ Instruments used were the rate of change of the money supply, the log ofthe ratio of government spending to GDP, lagged rate of change of outputprices, and the capacity utilization lagged once and twice.

_3/ Except for the LI region, where again, adequate historical data for Italywere not available.


- 23 -

of 0.7. Consequently, this variable was dropped, and the equationreestimated, giving the following results:

(31)

The implied values for the parameters of equation (30) are - .455,.728, and .269.

The degree of price flexibility is reflected in the size of effects ofcapacity utilization, and also by the smallness of A. The mean contractlength is estimated by A/(1-A); in the limiting case where A equals zero,the rate of change of the output price depends only on expected inflation,not past price changes. The estimated value for A implies a mean contractlength of about 10 months. Another important determinant of priceflexibility is the weight q applied to expected inflation relative tocurrent inflation: a high value reflects large responses of current wagebargains to forward-looking, rather than backward-looking, changes inconsumption prices. The estimated value for tj suggests a largeforward-looking component.

b. Trade prices

The model also includes equations for trade prices. As discussedabove, each country is assumed to produce a non-oil good (which isidentified as a manufactured good in the model, though in fact it alsoincludes some semi-finished manufactures and primary commodities) which isdifferentiated from other countries' goods. Moreover, the export price isdistinguished from the domestic output price, since in reality there seemsto be a considerable amount of price discrimination between home and foreignmarkets. \J (It is also possible that exporters discriminate betweendifferent export markets; this possibility is however not allowed for in themodel).

Manufactured import prices are determined in the model as weightedaverages of other countries' export prices. The average price of imports ofmanufactures of country i, PIM , is modeled as follows:

(32)

where the s correspond to the export shares in Table 6 above, PXM is the

price of exports of country j, and E is an index of the value of currency

j in terms of currency i.

I/See, for instance, Mann [1986],


- 24 -

As for export prices, their rate of change is assumed to be a linearcombination of the rates of change of domestic and foreign non-oil outputprices, where foreign prices use the same doubly-weighting scheme as thereal effective exchange rate, reflecting competition in all export markets.In addition, there is a term in the lagged difference (in logs) betweendomestic prices and export prices: this forces export prices in the long runto go up one-for-one with domestic output prices. Let PXM be themanufactured export price, PGNPNO the home non-oil output price, and PFM bea weighted average of competitors' prices in foreign markets. Theestimating equation can be written

(33)

Ordinary least squares estimates of coefficients are given below. Theregions were pooled, and the coefficient ft constrained to be the same; thisrestriction was not rejected by the data.

Table 9. Pooled Coefficient Estimates, Export Price Equations, 1969-85(t-ratios in parentheses)

Country a P R2 SER

United States

Japan

Germany

Larger Indus.

Smaller Indus.

.009(1.1)

-.011(1.4)

.000(0.0)

.005(0.6)

-.018(2.4)

.703(7.9)

.575(6.9)

.769(7.1)

.595(5.1)

.659(3.7)

.067(1.5)

.067(1.5)

.067(1.5)

.067(1.5)

.067(1-5)

.776 .033

.763 .031

.929 .016

.789 .021

.303 .045

overall fit statistics: R2 - .695 SER - .030

The estimates indicate a somewhat greater sensitivity of export prices ofJapan and of the larger remaining G-7 countries to the rate of change offoreign prices than is the case for the either Germany or the United States.


- 25 -

5. International accounts and exchange rates

A final block of equations in each country's model concerns thecalculation of the current account balance, the net international asset orliability position, and the determination of exchange rates. The tradebalance is the sum of a country's exports of manufactures and oil, minusimports of those goods and of primary commodities. The current account isthe trade balance plus net interest receipts, which are simply modeled asthe product of a weighted average of U.S. short- and long-term interestrates and the country's net foreign asset position. The latter variable,which is assumed to be denominated in dollars, is calculated in the model bycumulation of current account surpluses. Historical data for the majorindustrial countries do exist, and they differ from cumulated currentaccounts for various reasons, including valuation effects. However, sucheffects are not incorporated explicitly in the model's equations, and hencethey show up in the residual terms of the equations for the changes in netforeign assets.

The proximate determinant of exchange rates in the model is an equationfor open interest parity between short-term interest rates in differentcountries; that is, the expected appreciation of the dollar exchange rate isset equal to the short-term interest differential in favor of the dollar. !_/Such an arbitrage condition is analogous to the assumption described abovethat expected returns on long and short-term bonds are the same; as was thecase there, asset stocks (in particular net foreign assets) do not directlyaffect the expected returns differential. Consequently, without furtherstructure imposed on the model, a country would face a perfectly elasticsupply of foreign funds, whatever its net indebtedness position. This isunlikely to be so, even for major industrial countries, and further workwill attempt to capture the effects of limits to financing on exchangerates. However, as is the case for long-term bond rates, empiricalestimation with recent historical data has had difficulty in uncovering asystematic link between asset stocks and exchange rates. 2y

The level of the exchange rate is thus strongly influenced by monetaryforces that affect the short-term interest rate. However, it is also thecase that exchange rate expectations--which are made to be consistent withthe model's solution for the exchange rate next period--reflect the generalequilibrium of the model. Therefore, the exchange rate is the result ofmore than just monetary factors, and in particular, is affected by fiscalpolicy variables, the price of oil, and by productivity differences.

The model also generates a competitiveness index (REER) which is ameasure of relative export prices, with weights that reflect the importanceof other countries as competitors in all export markets (see equation 20

_!/ In addition, the equation has an exogenous residual which can benon-zero, and thus allows the model to reach an equilibrium real exchangerate despite real interest rates being different among countries in steadystate.

2j For a recent assessment of exchange rate models, see Isard [1987].


- 26 -

above). These variables appear in equations for the manufactured exports ofeach of the industrial countries and regions, and of the developing countryblock.

Of course, the bilateral exchange rates determined in the model can beweighted up in various ways, and it was judged useful to include equationsdefining the nominal effective exchange rates of industrial countries amongthemselves. These effective exchange rates are based on the MERM weightsused in the effective exchange rates published by the Fund for 18 industrialcountries, _!/ but the weights are collapsed to the 5 industrialcountries/regions included in the model. The resulting weighting matrix ispresented in Table 10.

Table 10. MERM Weights for Industrial Regions in the Model

US JA GR LI SI sum

United States

Japan

Germany

Larger Indus.

Smaller Indus.

--

.4974

.2164

.3305

.2535

.2125

--

.1255

.1076

.1027

.1302

.1318

--

.1550

.1395

.4292

.2022

.3558

--

.5043

.2281

.1686

.3023

.4069

--

1.0

1.0

1.0

1.0

1.0

Note: The effective exchange rate for any country in the stub is calculatedby applying the weights in the row for this country to bilateralexchange rates for the countries in the heading.

III. Rest of the World

The rest of the world has been divided into two separate regions; highincome oil exporters and the developing countries. While some variables andbehavioral relationships are assumed to be the same in these two regions, itwas necessary to separate them because a key feature of the model,constraints on external financing, are unlikely to be relevant for the highincome oil exporters. Most of the discussion below concerns the developingcountry block, where financing constraints do apply.

The developing country model has a number of features that distinguishit from the structure described above for industrial countries. First, as agroup they are assumed to be financing constrained, in the sense that they

I/ See Artus and McGuirk [1981] for a discussion of how the weights aregenerated.


- 27 -

do not face a perfectly elastic supply of funds from the industrialcountries. Instead, the amount available is determined endogenously, on thebasis of a measure of ability to service additional debt. Second, becauseof the heterogeneity of the countries considered, the developing countrymodel has greater commodity disaggregation; the region produces primarycommodities as well as a composite manufactured good and oil. Third, lackof adequate data and the problems of aggregating dissimilar countries haveinduced us to include less detail on financial markets and on the effects ofpolicy instruments. Finally, the existence of financing constraints impliesthat some category of expenditure in developing countries is not equal toits desired, equilibrium level. In the model, imports are determinedresidually by the balance of payments identity; correspondingly, the amountof domestic investment is the counterpart of the decision by foreigners tolend to the region: there is no separate investment function. Thesefeatures are described in more detail below.

1. Financing constraints

A key feature of the model is the determination of the net flow offinancing from industrial to developing countries. The availability offinancing is assumed to depend on the debt-interest-to-exports ratio _!/,evaluated at expected real interest rates and exports in the future. _2/Because of its forward-looking nature, it is a measure of solvency. Theamount of financing available depends on the difference (if positive)between some critical upper limit for the ratio and its current level. Ifthe gap is negative, developing countries are assumed to be constrained torun down net debt, that is, to run a current account surplus (adjusted forthe inflation component in debt service). Therefore, from any initial levelthe interest ratio will tend to converge, in time, to the critical level,which is imposed exogenously on the model.

Algebraically, the financing equation can be written as follows. Calla the interest to exports ratio, r the U.S. interest rate minus the expectedrate of change of U.S. prices (assumed to apply both to debt and to foreignreserves), PX and X are developing-country export prices and volumes, D isthe stock of developing-country debt, FR are foreign reserves, and E is thedollar exchange rate. Then

(34)

The change in debt D is assumed to reflect both expected growth indeveloping countries' exports plus an adjustment term that takes theinterest-to-exports ratio toward its critical level, x- Let g be theexpected average annual growth rate of the dollar value of exports over somefuture period (in practice the horizon is taken to be 5 years). Let p be afraction between 0 and unity, where p is a function of the ratio x/°- suchthat p goes to unity as the ratio goes to infinity and to zero as x/a goes

I/Net of interest receipts on foreign reserves.

2J For a discussion of the burden of external debt facing developingcountries, see Dooley and others [1986].


- 28 -

to zero. Then the financing equation can be written

(35)

The proportion p is intended to capture the fact that within the developingcountry region there is a distribution of debt ratios, corresponding to arange of indebtedness. For those countries whose ratio far exceeds somecritical level, new financing is unlikely to be forthcoming initially, evenif exports rise. For other countries whose interest ratios are within thethreshold level, financing is likely to grow with exports. However, asustained growth in exports will tend to graduate countries in the firstgroup into the second group, by bringing their interest ratios down toacceptable levels. The behavior of the average developing country ratiowill in a rough way capture the proportion of countries that are below thethreshold level at which they can obtain additional financing. In the modelthat is simulated below, the p is set to a constant, 0.3. In future work,its value may be endogenized, however.

Thus financing and repayment for developing countries is a function ofthe average rate of growth of the value of DC exports over the simulationperiod, the rate of convergence n, and the interest to exports ratio a,(which depends on the inherited debt stock and the interest rate). The flowof financing changes as a result of forces largely beyond the control ofdeveloping countries themselves--interest rates and demand for theirexports. The threshold level x and the speed of adjustment p, werecalibrated to give a realistic path for future financing flows; however, itis clear that these parameters may be influenced both by DC policies andregulations in industrial countries which affect the lending behavior offinancial institutions.

There are some components of net debt that can be controlled directlyby the country itself. In particular, foreign exchange reserves can be usedto cushion shocks to the balance of payments; when there is a shortfall ofexport earnings or a fall in gross capital inflows, reserves can be run downtemporarily, and subsequently built up to a normal relationship with, say,imports. Conversely, favorable developments in the terms of trade or exportvolumes may lead to temporary increases in reserves above their equilibriumlevels; to the extent the favorable export performance is permanent, importscan be expected to rise over time, and reserves will therefore be run downin later periods. Thus reserves serve as a buffer to cushion the economyagainst shocks to the balance of payments; as a result, imports may notexhibit such extreme fluctuations. _!/ The model includes an equation forforeign exchange reserves FR of the form

(36)

where 8 is the normal ratio of reserves to imports, so that in equilibrium,

JY Other balance of payments items, for instance arrears in debt service,may also play a role in buffering shocks.


- 29 -

Equation (36), along with the balance of payments identity that states thatthe current account is equal to the change in debt minus the change inreserves, implies that imports are given by the following equation:

(37)Thus, a shock to export earnings, for instance, will be cushioned by adecline in foreign reserves, so that imports decline not by the amount ofthe decline in exports, but by a proportion l--y that is less than unity.Over time, however, the normal relationship between reserves and importswill be reestablished--this is the role of the second term in equation (37).

2. The structure of the aggregate developing country model

As mentioned above, output of this region consists of a compositemanufactured good, oil, primary commodities, and a non-traded good. Thesupply structure of these four goods is assumed to be quite different. Theprice of the manufactured good is not perfectly flexible, and does not moveimmediately to equate demand for the good and potential output. Instead, anincrease in demand will increase both output and, over time, the price ofthe region's manufactured good. Because manufactured goods aredifferentiated, producers have some market power to price their gooddifferently from goods produced in other countries. The rate of change inthe price of the DC manufactured good depends negatively on the gap betweencapacity output in this sector and actual output. However, since historicaldata did not exist for capacity output for developing countries as a whole,the coefficient could not be estimated. Instead, the effect of capacityutilization on price was given a value based on similar equations forindustrial countries.

The non-traded good also is assumed not to have a perfectlyflexible price and hence exhibits increases in output when demand increases.It is assumed that increases in consumption fall on non-traded goods in

some fixed proportion. The price of non-traded goods is however not modeledexplicitly, and furthermore it is assumed that there is no capacityconstraint on the production of non-traded goods: output can be increasedwithout shifting resources out of the other sectors.

In contrast, both oil and primary commodities are treated as ahomogeneous goods, each with a single world price. In the case of oil, theprice in real terms is taken to be exogenous, and the developing countriesand high-income oil exporters are jointly treated as residual suppliers,such that world demand and supply are equal. For primary commodities, therelative price is endogenous, and moves immediately to clear the model.Supply of commodities is assumed to be given by the accumulated capitalstock in this sector; the paradigm is a harvest or production from mineswhere individual producers are too small to influence the price, and wheremarginal costs of contemporaneous supply are zero. Therefore, an increasein demand for primary commodities will in the first instance bring about anincrease in their price but not in the quantity produced. Only over time,as resources are shifted into this sector in response to improvedprofitability, will supply increase.


- 30 -

Given the quantity of exports and net financing less interest payments,the quantity of imports is determined residually. Implicit then is theassumption that the amount of financing constrains domestic expenditure;notional import demand (if it were made explicit), would be larger thanactual imports.

Domestic demand is disaggregated only into consumption and investment;in the data, private and government demands are not distinguished.Consumption (C) depends on wealth (W) as well as the real flow of financingavailable, as a ratio to lagged consumption:

SER - .016 (38)

where D is the value in U.S. dollars of outstanding debt, E is the exchangerate and P is the absorption price. Wealth is calculated by capitalizingexpected future income, as for the industrial country models, and adding netclaims on foreigners (in the case of developing countries, subtracting netliabilities to foreigners). As in the industrial countries, wheredisposable income has an effect on consumption, here the flow of additionalfinancing tends to lead to increases in current consumption. J/ The amountof new financing that is not consumed is available for investment. Thisamount must be large enough to sustain the increased debt interest paymentson the higher value of debt, since the model in calculating the amount ofendogenous financing, uses the value expected in the future for nominalexports. Starting from an equilibrium with the interest payments ratio atits threshold level, it must therefore be the case that the marginal productof capital, times the proportion invested, must be greater than the rate ofinterest on an additional unit of debt. Otherwise, an additional dollar ofdebt will raise the numerator by more than the denominator. Because anassessment of the marginal product of capital is implicit in the equationfor the supply of foreign financing, there is no additional investmentequation; instead, investment is determined residually as the sum ofdomestic saving and foreign saving (that is, the current account deficit),with the latter determined by the solvency criterion. 2/

Investment is allocated by sector on the basis of rate of returnconsiderations. There are a number of factors--taxes and subsidies,relative prices and wages, and shifts in production technology--that arenecessary for a complete story. Neither the data nor the model are adequatefor such a treatment; however, the model does focus on an important element,namely the sharp fall in profitability of producing primary commodities andthe overhang of large amount of productive capacity that is the result of acapital stock that was accumulated when investment in this sector was

JY Haque and Montiel [1987] also find that liquidity constraints areimportant for explaining consumption in developing countries.

]J In a more general model, the government can influence the mix betweenconsumption and investment; for a model incorporating such effects, seeBlejer and Khan [1984].


- 31 -

attractive, for instance in mining. Given rates of depreciation that arelow, and variable costs of production that are small relative to the capitalcosts, output may continue to be high even if no new resources are beingshifted into the primary commodity sector. In the model, the share of newinvestment that goes into the production of primary commodities relative tomanufactures is made to depend on their relative prices; below a certainlevel for this ratio, investment in the primary commodities sector is justequal to depreciation--that is, there is no net investment. Only whenprofitability in primary commodities reaches a certain level (taken to beits previous peak, roughly its 1980 level) will positive net investment inprimary commodities resume.

The remaining additional investment will be directed to the productionof manufactures; neither non-traded goods nor oil are assumed, for thepurposes of the model, to involve capital. The desired supply ofmanufactures and the production of commodities will then depend on theexisting stock of capital in that sector, and a time trend. In the absenceof actual data on capital stocks by sector, production functions were notestimated but instead their parameters were chosen on the basis of plausiblefactor shares. _!/ Once in place, capital is assumed not to be mobile betweensectors. Only new net investment will alter the shares of capital in thetwo sectors.

3. The high income oil exporters

This group of countries 2/ *s treated separately, first because thecountries are in general considerably wealthier than the developingcountries discussed above, and hence do not face constraints on theirbalance of payments financing at the present time; and second, because theiroil exports constitute so large a fraction of GNP that the structure of themodel for this region can be made simpler.

In this model, trade volumes and prices are modeled in the same detailas for other developing countries, but domestic demand is not modeled nor isoutput of manufactures. Furthermore, imports are assumed not to beconstrained by available financing; instead, import volume equations forprimary commodities and manufactures each depend on the relative price ofthis region's output (identified with the price of oil) and the import priceof the relevant good. The balance of payments identity determines theregion's accumulation of net foreign assets.

\J For an attempt to estimate export supply functions for developingcountries, see Bond [1987].

2/This group is constituted by Iran, Iraq, Kuwait, Libya, Oman, Qatar, SaudiArabia, and the United Arab Emirates. They are classified in the WorldEconomic Outlook as capital exporting countries, and defined as thosedeveloping countries that, on average, recorded a current account surplusduring the period 1979-81 and were aid donors over the same period.


- 32 -

IV. Some Standard Simulations

1. Industrial country monetary and fiscal shocks

In order to understand the model's properties, it is useful to examinesimulations of changes in the major exogenous variables. In particular,since the model will be used to analyze the effects of industrial countrypolicies, we first look at standardized changes in the monetary and fiscalpolicy instruments in the three major industrial countries, the UnitedStates, Japan, and Germany. However, these simulations are not meant tosuggest desirable or likely changes in exogenous variables, but rather toelucidate the functioning of the model. These simulations do not thereforeserve the same role as those presented in the context of the World EconomicOutlook.

In performing these shocks, care was taken not to depart from thehistorical experience of the countries concerned, nor to perform experimentsthat violate governments' budget constraints, in the sense that governmentsare allowed to increase their debt as a ratio of GNP without limit. Thiswould be the case, for instance, if the experiment were a permanent: increasein bond-financed government expenditures, without an eventual increase intaxes. The model contains a tax rule that tends to stabilize the bond toGNP ratio, so that explosive growth in debt is ruled out. In addition, weprefer to perform experiments where the ratio of government spending to netnational product does not change permanently, but only for some transitoryperiod. The evidence cited above that the government's spending shareseemed not to have exhibited any marked trend since 1960 makes such a setupappropriate. Therefore, the fiscal shocks we report below are for a onepercent increase in the government's share of output in 1988, decliningtoward the baseline share with a speed equal to that implied by thehistorical estimates, namely a mean lag of 4.2 years, the time for half ofthe adjustment to take place (see section II.1.a above). Even if governmentspending declines to its baseline level eventually, the accumulation ofgovernment debt that has occurred in the meantime will imply some increasesin taxes; however, in the simulations reported below, the tax increases areassumed to occur only starting in 1996, beyond the period of interest, whichis 1988 to 1995.

A few words are necessary to explain how the simulations wereperformed. The exogenous and endogenous variables were first projectedforward beyond the historical period; in most cases, the projections weresimply those implied by the most recent WEO projections. The model was thenused to calculate the residuals in the behavioral equations that would givethe values of the endogenous variables, given the exogenous variables.Thus, the model is not used itself for making forecasts; instead thebaseline projection is imposed on the model.

A complication in solving the model is the existence of expectationsvariables. These variables are constrained in the solution procedure toequal the values for the relevant future time period that the modelproduces--that is, the expectations are made to be consistent with themodel's predictions. This is achieved through a program that implements theFair-Taylor algorithm, which constrains expectations and model solutions to


- 33 -

be the same, to a preset tolerance, by iterating. \J In general, in order toavoid making the simulation results depend on arbitrary terminal conditions,the model has to be solved beyond the period of interest. In thesimulations reported below for 1988-95, the model was in fact solved for 20additional years, to 2015.

Appendix Table 1 gives the result of an increase In U.S. fiscalexpenditures of 1 percent of GNP, declining back toward zero as describedabove. Because of the scaling, the initial effect on GNP has theinterpretation of a standard fiscal multiplier, that is, the change inoutput resulting in a unit change in government spending. That multiplieris equal to 1.2 for the United States, which is slightly below the mean forexisting multi-country models _2/ (and almost exactly equal to MINIMOD's).With the passage of time, the positive effect on output disappears, and bythe fifth year output is actually lower; this occurs because of crowding outof demand through two channels--higher interest rates and an appreciation ofthe dollar. The norainal effective exchange rate appreciates by about 2percent on impact. Part of the fall off in the positive effect on output isalso due to the decline in government spending. Since the model hascyclical mechanisms, such as the interaction of the spending multiplier andinvestment accelerator, output goes lower for a time; in the longer-run,however, it returns to its baseline path.

Effects on other countries of the fiscal expansion in the United Statesare also positive as concerns output; they benefit from increasedexpenditure in the United States as well as currency depreciation. However,interest rates rise in all countries, and this has some unfavorable effectson the developing countries because of higher debt service. Interestpayments to export earnings rise, despite substantial increases in exports.Since the developing countries are assumed to peg to a basket of industrialcountry currencies, they tend to depreciate against the dollar in thissimulation.

A U.S. monetary shock is presented in Appendix Table 2. In thissimulation, the target for the U.S. stock of base money is increased by 5percent in 1988, and kept at this higher level thereafter. Since the modelis neutral with respect to nominal shocks in the long run, eventually theresult will be an increase in the U.S. price level by 5 percent, and adepreciation of the dollar by the same amount. It can be seen that by 1994,the U.S. price level has increased by 5 percent; because the model reachesequilibrium in a cyclical fashion, the price level continues to rise for atime. In the short run, the monetary expansion lowers interest rates andstimulates output; the exchange rate also overshoots its long-run level(i.e. the U.S. effective exchange rate depreciates by more than 5 percent inthe first year), as is to be expected in a model with price stickiness.

y See Fair and Taylor [1983]. The model is solved using TROLL; see MIT[1983] .

^l See Bryant and others [1988].


- 34 -

Effects on foreign economies are mixed. In keeping with the simpleMundell-Fleming model, monetary policy is negatively transmitted (after thefirst period) to other industrial countries, and output falls in Germany andJapan as a result of the appreciation of their exchange rates. Developingcountries experience a small rise in GDP after the first year, and asubstantial decline in their debt service ratio, as a result of lower U.S.interest rates. As mentioned above, the model takes the oil price (in realterms) to be exogenous, so it has not changed as a result of the shock, butthe dollar price has risen. Moreover, the U.S. monetary expansion hasraised world demand for oil, also increasing the GDP of the oil exportingcountries.

Appendix Tables 3-6 give results for the same fiscal and monetaryshocks for Japan and Germany. They are qualitatively similar to AppendixTables 1 and 2. Fiscal multipliers are however considerably lower forGermany, which is natural given its greater openness. Another difference isthat policy changes in Germany and Japan have smaller effects on othercountries, since they are smaller economies.

2. A decrease in the price of oil

The model contains estimated equations for oil demand on the part ofindustrial countries, as discussed above. Any increase in demand bringsabout an increase in production, which is shared between the developingcountry region and the high-income oil exporters. Thus world demand andsupply are brought into balance.

Appendix Table 7 reports a simulation in which the oil price was madeexogenous in dollars and decreased by 20 percent, or roughly 4 dollars abarrel. It can be seen that this stimulates output in industrial countriesas a group for several years, by about 0.5 percent relative to its baselinelevel. Interestingly enough, the stimulus to output occurs largely becauselong-term interest rates fall, anticipating downward pressures on pricesthat however occur only with a long lag. This mechanism--large effects onexpectations, and hence anticipatory effects on long-term rates-- is afeature that depends on having forward-looking expectations as in MULTIMOD.However, individual countries are affected differently; in Japan, because ofthe yen appreciation, output actually declines after the second year.

Developing countries generally benefit from the fall in oil prices,though, given their position as a net oil exporter, their terms of tradedeteriorate. The high income oil exporters show an increase in real GDP,but not of course their real income nor their current account balance (notshown). Given a long run elasticity of oil demand of about 0.7, the valueof their exports declines.

3. An increase in financing flows £o developing countries

Appendix Table 8 presents a simulation in which the flows of financingfrom industrial to developing countries are increased by $20 billion eachyear over 1988-92 relative to their baseline levels. These financing flowsare assumed to be the results of official loans at concessional rates andwith reimbursement beyond the end of the simulation period, financed by


- 35 -

increased budget deficits in industrial countries (on the basis of GNPshares).

Since the developing countries are assumed to be constrained byavailable financing, their imports go up one-for-one with the increase inloans. This increase in imports leads to higher economic activity inindustrial countries, despite a small increase in their interest rates.Stimulus to activity varies by country, depending on the importance of tradewith developing countries and indirect feedbacks. Industrial countries as agroup show a substantial, and sustained rise in output. Output indeveloping countries also increases, as increased imports of investmentgoods increase the capital stock and aggregate supply.


Table Al. Increase of U.S. Government Spending by 1 Percent of GNP

(PERCENTAGE DEVIATION FROM BASELINE UNLESS OTHERWISE NOTED)

1988 1989 1990 1991 1992 1993 1994 1995

MAJOR INDUSTRIAL COUNTRIES

UNITED STATES

REAL GNPREAL DOMESTIC DEMANDGNP DEFLATORSHORT-TERM INTEREST RATE (%)LONG-TERM INTEREST RATE (%)NOMINAL EFFECTIVE EXCHANGE RATE I/

(AS A PERCENT OF BASELINE GNP)CURRENT ACCOUNT BALANCEGEN. GOV. FINANCIAL BALANCE.,PRIVATE SAVINGGROSS PRIVATE INVESTMENT

JAPAN

REAL GNPREAL DOMESTIC DEMANDGNP DEFLATORSHORT-TERM INTEREST RATE (%)LONG-TERM INTEREST RATE (%)NOMINAL EFFECTIVE EXCHANGE RATE I / .EXCHANGE RATE (S/VEN)

(AS A PERCENT OF BASELINE GNP)CURRENT ACCOUNT BALANCEGEN. GOV. FINANCIAL BALANCE.PRIVATE SAVINGGROSS PRIVATE INVESTMENT

GERMANY

REAL GNPREAL DOMESTIC DEMANDGNP DEFLATORSHORT-TERM INTEREST RATE (%)LONG-TERM INTEREST RATE (%)NOMINAL EFFECTIVE EXCHANGE RATE I/.EXCHANGE RATE ($/DM)

I/ A POSITIVE VALUE INDICATES AN APPRECIATION.

1100.02

-0-000.

000,0,0.

- 1 .-2.

0.0.0.0.

-0.-0.0.0.0.0.

- 1 .

. 24

.64

.54

. 25

. 29

.31

. 27

. 73

.60

. 1 4

.55

. 23,41, 14, 1 2, 1523

, 16. 121915

05080902143750

111002

-0-000

001 .0,0.

- 1 ,-2.

0.0.0.0.

0.-0.0.0.0.0.

-1 .

.00

.45

. 36

.41

.30

. 14

. 29

. 65

.61

. 25

.75

.41

.04, 24. 1 1, 1 1, 10

. 19

. 1926

, 26

0602271 2154728

0.0.2 .0.0.1 .

-0.-0.0.0.

0.0.1 .0.0.

- 1 .- 1 .

0.0.0.0.

0.0.0.0.0.0.

- 1 .

539916542790

28655013

70396830090591

19232327

16055323145601

002001

-0-00-0

00200-0- 1

0000

000000

-0

. 1 1

.58

.78

.62

. 23

.60

.28

.67

.38

.01

.47

. 22

. 17

.32

.07

.94

.66

. 1 7

. 22

. 14

. 19

. 19

.07

.80

.33

. 12

.61

.73

-003001

-0-00

-0

00200

-0-1

0000.

0.0.1 .0.0.0.

-0.

. 17

. 30

. 14

.68

. 19

. 27

.29

. 67

. 28

. 10

. 24

.04

.40

.31

.05

.78

. 34

. 15

. 20

.03

.09

. 1705

. 02

.40

. 10,6146

-0.0.3.0.0.0.

-0.-0.0.

-0.

0.-0.2.0.0.-0.-0.

0.0.-0.0.

0.0.1 .0.0.0.-0.

311424681490

28642114

06103728045594

13140100

16041844085720

-003000

-0-00

-0

-0-0,2.0,0.

-0.-0.

0,0.

-0.-0.

0.0.1 .0.0.0.0.

.35

.06

. 13

.66

.09

.50

. 28

.59

. 16

. 15

.01

. 16

.09

.24

.02

.28

.49

, 13. 10,01,04

16032446054703

-002000

-0-00-0

0-0

100-0-0

000-0

0010000

.34

.03

.81

.59

.04

.09

.26

.54

. 15

. 13

.01

. 15

.62

. 19

.00

.00

.03

. 13

.07

.01

.05

. IB

.04

. 19

.44

.02

.32

.21

36A

PPEND

IX

I


02/23/1988

Table Al. Increase of U.S. Government Spending by 1 Percent of GNP (continued)


1988 1989 1990 1991 1992 1993 1994 1995


GERMANY (CONTINUED)

(AS A PERCENT OF BASELINE GNP)CURRENT ACCOUNT BALANCEGEN. GOV. FINANCIAL BALANCE..PRIVATE SAVINGGROSS PRIVATE INVESTMENT

OTHER MAJOR INDUSTRIAL COUNTRIES(CANADA, FRANCE, ITALY AND THE UNITEDKINGDOM)

REAL GNPREAL DOMESTIC DEMANDGNP DEFLATORSHORT-TERM INTEREST RATE (%)LONG-TERM INTEREST RATE (%)NOMINAL EFFECTIVE EXCHANGE RATE I/...


OTHER INDUSTRIAL COUNTRIES

REAL GNPREAL DOMESTIC DEMANDGNP DEFLATORSHORT-TERM INTEREST RATE (%)LONG-TERM INTEREST RATE (%)NOMINAL EFFECTIVE EXCHANGE RATE I / ,

(AS A PERCENT OF BASELINE GNP)CURRENT ACCOUNT BALANCE ,GEN. GOV. FINANCIAL BALANCE..PRIVATE SAVINGGROSS PRIVATE INVESTMENT....,

0.00-0.01•0.02•0.03

0.250.060. 270.100.16•1 .03

0.090.050. 100.06

0.610.300.350.090.140.68

0.200.100.260.16

0.0.0.-0.

0.0.0.0.0.-0.

0.0.0.0.

0.0.0.0.0.-0.

0.0.0.0.

04020101

462672191597

151 11914

563884151465

12092826

0000

00100-0

0000

00100-0

0000

.04

.04

.03

.03

.56

.36

.25

.28

. 14

.91

.20

. 14

.25

. 19

.40

.24

.33

. 21

. 14

.57

. 12

.05

.26

. IB

0.0.0.0.

0.0.1 .0.0.

-0.

0.0.0.0.

0.0.1 .0.0.-0.

0.-0.0.0.

03040405

493375331 183

22142416

220871251245

12012008

0.0.0.0.

0.0.2.0.0.-0.

0.0.0.0.

0.-0.

1 .0.0.-0.

0.-0.0.0.

03040405

322010340874

22121808

090392271031

1 1041600

0000

00200-0

000-0

0-0

100-0

0-00-0

.05

.03

.06

.04

. 10

.03

.22

.32

.05

.61

. 19

.06

. 12

.01

.01

. 10

.95

. 27

.07

. 18

. 10

.08

. 12

.06

0000

-0-0200-0

000-0

-0-0

100-0

0-00-0

.07

.02

.08

.03

.08

. 12

.08

.27

.02

.46

. 16

.01

.05

. 10

.02

. 10

.82

.25

.04

.05

.08

.09

. 10

.07

0.0.0.0.

-0.-0.

1 .0.-0.-0.

0.-0.0.-0.

-0.-0.

1 .0.0.0.

0.-0.0.-0.

09021 103

192170200227

1 1040014

010753210106

06090906

37


AP

PE

ND

IX

I


02/23/1988Table Al. Increase of U.S. Government Spending by 1 Percent of GNP (concluded)


1988 1989 1990 1991 1992 1993 1994 1995

TOTAL INDUSTRIALS

REAL GNPCURRENT ACCOUNT BALANCE, AS A PERCENT

OF BASELINE GNP

DEVELOPING COUNTRIES

0.67 0.69 0.53 0.30 0.10 -0.05 -0.12 -0.13

-0.02 -0.01 0.00 0.00 -0.01 -0.01 -0.02 -0.02

DEVELOPING COUNTRIES.EXCLUSIVE OFHIGH INCOME OIL EXPORTERS

REAL GDPREAL DOMESTIC DEMANDGNP DEFLATORPRICE INDEX OF EXPORTS (IN $)REAL EXPORTSREAL IMPORTS ... ... ....INTEREST PAYMENTS AS A PERCENTAGE

OF EXPORT VALUES

000

- 100

0

. 231 1.5400.9149

.03

0. 240 . 081 .02

-0 460.890. 26

0.31

0.210 061 .490 170.710 08

0.54

0.17-0.04

1 .850. 740.49

-0 44

0.72

n-n71 ,n

-0.

0.

1 113067?3?7°i

.75

n-n?in

-n

0

OR1909.557196

.72

0.02-0.22

1 .951 .730.17-0.94

0.66

-0.01-0.21

1 .661 .750.17-0.76

0.56

(AS A PERCENT OF BASELINE GDP)CURRENT ACCOUNTTOTAL SAVINGSGROSS PRIVATE INVESTMENT....

HIGH INCOME OIL EXPORTING DEVELOPINGCOUNTRIES

REAL GDPREAL DOMESTIC DEMAND.

WORLD PRICES (IN DOLLARS)

PRICE OF OIL. IN DOLLARS...PRICE INDEX OF COMMODITIES.

O.OB0.170.09

0.50-0.00

-1 .070.40

0.060.100.05

0.530.01

-0.390.44

-0.010.000.01

0.420.01

0.370.57

-0.01-0.07-0.07

0. 230.01

1 .040.73

0.00-0.11-0.11

0.050.01

l .560.92

0.01-0.10-0. 1 1

-0.080.00

1 .881 .09

0.02-0.07-0.08

-0.140.00

2.011 . 23

0.02-0.01-0.03

-0.140.00

1 .951.31

38A

PPEND

IX

I


02/23/1988Table A2. Increase of 5 Percent in the U.S. Money Supply


1988 1989 1990 1991 1992 1993 1994 1995


UNITED STATES


(AS A PERCENT OF BASELINE GNP)CURRENT ACCOUNT BALANCEGEN. GOV. FINANCIAL BALANCE.PRIVATE SAVINGGROSS PRIVATE INVESTMENT....

JAPAN

REAL GNPREAL DOMESTIC DEMANDGNP DEFLATORSHORT-TERM INTEREST RATE (%)LONG-TERM INTEREST RATE (%)NOMINAL EFFECTIVE EXCHANGE RATE I/EXCHANGE RATE (S/YEN)

(AS A PERCENT OF BASELINE GNP)CURRENT ACCOUNT BALANCEGEN. GOV. FIN A N C I A L BALANCE.PRIVATE SAVINGGROSS PRIVATE INVESTMENT....

GERMANV

REAL GNPREAL DOMESTIC DEMANDGNP DEFLATORSHORT-TERM INTEREST RATE (%)LONG-TERM INTEREST RATE (%)NOMINAL EFFECTIVE EXCHANGE RATE I / ,EXCHANGE RATE ($/DM)

1 .0.0.

-0.-0.-6.

0,0.0.0.

-0.-0.-0.-0.0.3.6.

-0.-0.-0.-0.

-0.-0.-0.-0.0.1 .7 .

. 15

.53

.70

.7909.33

. 14

. 13

.30

. 29

.55

. 26

. 15

. 1 2

.082876

.09

.091 71 7

41161324058315

101

-0-0-5

0000

-0-0-0-0026

-0-0-0-0

-0-0-0-0016

. 16

.61

.57

.61

.05

.86

. 17

. 27

. 29

.39

.62

.37

. 25

. 14

.08

.96

. IB

. 1 1

. 1 2

. 24

. 24

. 39

. 22

.21

.25

.07

.82

.72

002

-00-5

0000

-0-0-0-0025

-0-0-0-0

-0-0-0-0016

.96

.47

.50

.43

.00

.56

. 19

. 22

. 27

. 30

. 24

. 14

. 23

.07

.09

. 75

.80

.03

.05

. 1 2

. 14

. 12

.03

.21

. 16

.08

.88

.50

003

-00

-5

0000

-00

-0-0025

-0-0-0-0

0.0

-0-00.1 .6,

. 70

.30

.37

. 28

.04

.32

. 18

. 16

. 21

. 19

.02

.05

.06

.01

.09

.59

.51

.02

.00

.05

.03

.01

. 10

. 1 1

. 10

. 10

.93

.33

00.4 .

-0,0,

-5

00.0,0.

000.0,0.25 .

-0,0.

-0,0.

0.0.0,

-0.0.1 .6.

.49

. 17

. 1 1, 15.06. 1 1

. 15

.09

. 14

.09

.09

. 14

. 21,03.09. 47. 28

.00

. 03

. 01

.02

,04. 12,03. 04, 10,98, 18

0.0.4.

-0.0.

-4.

0.0.0.0.

0,0.0.0.0.2.5.

0.0.

-0.0.

0.0.0.0.0.2.6.

.34

. 10,69,05,09.91

, 12,07,07,01

, 10, 1 4.52,07,093909

.01,05,0103

02.09, 19,01, 1 1,02,05

00500-4

000-0

0000024

00-00

-0000025

.23

.05

. 1 2

.02

. 10

.73

.09

. 05

. 00

. 04

.04

.08

.82

. 09

.09

. 33

.93

.01

.04

.02

.01

. 02

.04

. 32

.04

. 1 1

.05

.91

00500-4

00-0-0

-0010024

00-0-0

-0-000025

. 1 7

.04

.41

.07

. 1 1

.58

.06

.05

.05

.07

.04

.01

.06

. 1 1

.09

.28

.79

.01

.03

.04

.03

.04

.00

.41

.07

. 1 2

.07

.79

39

W A POSITIVE VALUE INDICATES AN APPRECIATION.

APPEN

DIX

]


02/23/1988Table A2. Increase of 5 Percent in the U.S. Money Supply (continued)


1988 1989 1990 1991 1992 1993 1994 1995


GERMANY (CONTINUED)

(AS A PERCENT OF BASELINE GNP)CURRENT ACCOUNT BALANCEGEN. GOV. FINANCIAL BALANCE..PRIVATE SAVINGGROSS PRIVATE INVESTMENT....



(AS A PERCENT OF BASELINE GNP)CURRENT ACCOUNT BALANCEGEN. GOV. FINANCIAL BALANCE.,PRIVATE SAVINGGROSS PRIVATE INVESTMENT....


REAL GNPREAL DOMESTIC DEMANDGNP DEFLATORSHORT-TERM INTEREST RATE (%)....LONG-TERM INTEREST RATE (%)NOMINAL EFFECTIVE EXCHANGE RATE


1 / .

0.0.•0.•0.

0.0.0,0.0.1 ,

0,0.0.0,

0.0.0.0.0.1 .

0.0.0.0.

02050815

130504050987

08000007

754619070786

16122723

0.-0.-0.-0.

-0.-0.-0.-0.0.1 .

0.-0.-0.-0.

-0.-o.-0.-0.0.1 .

0.-0.-0.-0.

04041 119

191303051072

0502041 1

433827060868

02071827

0.0.-0.-0.

-0.-0.0.-0.0.1 .

0.0.-0.-0.

0.0.-0.-0.0.1 .

0.0.-0.-0.

10020210

080704021063

08000008

060318031054

06010005

000-0

-0-00001

000-0

000001

0000

. 10

.05

.03

.02

.02

.01

. 14

.01

. 10

.53

.07

.01

.02

.04

. 17

. 20

.04

.01

. 1 1

.44

.02

.03

.07

.08

0.0.0.-0.

0.0.0.0.0.1 .

0.0.0.-0.

0.0.0.0.0.1 .

0.0.0.0.

10060401

030328041042

07020402

141830041 138

02020808

0.0.0.-0.

0.0.0.0.0.1 .

0.0.0.-0.

0.0.0.0.0.1 .

0.-0.0.0.

10050302

OS0544061029

08020501

051056071235

03000704

000-0

000001

000-0

-000001

0-00

-0

. 10

.04

.02

.05

.06

.05

.60

.09

. 10

. 17

.08

.02

.06

.00

.04

.01

.77

.09

. 12

.31

.04

.03

.05

.01

000-0

000001

000-0

-0-00001

0-00

-0

. 1 1

.03

.01

.07

.06

.04

.75

. 1 1

. 10

.09

.08

.01

.07

.00

.08

.05

.92

. 1 1

. 12

.27

.04

.05

.04

.05


40

APPE

ND

IX


02/23/1988Table A2. Increase of 5 Percent in the U.S. Money Supply (concluded)


1988 19B9 1990 1991 1992 1993 1994 1995

TOTAL INDUSTRIALS


OF BASELINE GNP


DEVELOPING COUNTRIES,EXCLUSIVE OFHIGH INCOME OIL EXPORTERS

0.11 0.11 0.24 0.25 0.21 0.16 0.09 0.04

0.03 0.05 0.10 0.08 0.08 0.07 0.06 0.06

REAL GDPREAL DOMESTIC DEMANDGNP DEFLATORPRICE INDEX OF EXPORTS (IN $).. . .REAL EXPORTSREAL IMPORTSINTEREST PAYMENTS AS A PERCENTAGE

OF EXPORT VALUES

-00-05-0

1

-0

. 1022. 2436.41. 06

.65

0.030.39

-0.085 25

-0.061 . 66

-1 .37

nnnsn?

-1

. 16

.64

. 1733. 23.56

. 10

0.210.550.455.430.361 .97

-0.86

0nnsni

-0

.23

.46

.7454.38.52

.61

0. 220.361 .005.650.371 .06

-0.41

0.200.261 .225. 730.340.63

-0.27

0.180.171 .385.780.310.33

-0.17

(AS A PERCENT OF BASELINE GDP)CURRENT ACCOUNTTOTAL SAVINGSGROSS PRIVATE INVESTMENT




PRICE OF OIL, IN DOLLARS...PRICE INDEX OF COMMODITIES.

-0.150.010.16

0.120.01

4.515.20

-0.130. 100.23

0. 170.00

4.465.69

-0.290.040.33

0.340.00

4.626.09

-0.210.000.21

0.300.00

4.86B.97

-0. 18-0.040.14

0.240.01

5.115.82

-0. 15-0.070.08

0. 160.01

5.335.71

-0.12-0.090.03

0.080.00

5.485.65

-0.09-0.09-0.00

0.020.00

5.595.64

- 41 -

APPEN

DIX

I


02/23/1988Table A3. Increase of Japanese Government Spending by 1 Percent of GNP


1988 1989 1990 1991 1992 1993 1994 1995


UNITED STATES

(AS A PERCENT OF BASELINE GNP)CURRENT ACCOUNT BALANCEGEN. GOV. FI N A N C I A L BALANCE.PRIVATE SAVINGGROSS PRIVATE INVESTMENT....

JAPAN

REAL GNPREAL DOMESTIC DEMANDGNP DEFLATORSHORT-TERM INTEREST RATE (%)LONG-TERM INTEREST RATE (%)NOMINAL EFFECTIVE EXCHANGE RATE I/.EXCHANGE RATE (S/VEN)


GERMANY

REAL GNPREAL DOMESTIC DEMANDGNP DEFLATORSHORT-TERM INTEREST RATE (%)LONG-TERM INTEREST RATE (%)NOMINAL EFFECTIVE EXCHANGE RATE I/ .EXCHANGE RATE ($/DM)


0.0.0.0.0.0.

0.0.0.0.

11000.0.0.

0•0.0.0.

0.0,000.0.0.

020209030814

.02000200

.54

.97

.63

. 27

.09

.48

.37

.22

.60

.62

. 24

.07

.04

.05

.02

.07

.36

. 1 7

000000

0-000

1110000

-0-000

-0-000000

. 06

.00

. 25

.08

. 10

.25

.03

. 00

.04

.01

. 27

.81

.53

. 33

.08

. 18

. 05

. 28

.43

.56

.41

.00

.01

. 15

.04

.09

.49

. 21

000000

0-000

01200-0-0

-0-000

0000000

.09

.02

.45

. 13

. 1 1

.35

.02

.01

.05

.02

. 63

. 18

. 33

. 32

.07

. 12

. 27

. 29

. 36

. 32

. 24

.05

.02

.30

. 1 1

.09

.60

. 24

000000

0-000

00200-0-0

-0-000

0000000

.08

.03

.64

. 18

. 1 1

.44

.01

.03

.05

.02

. 04

.57

.81

. 29

.06

.35

.51

.29

.33

.07

.02

.07

.03

.45

. 16

. 10

.69

. 26

000000

-0-000

-00200-0-0

-0-0-0-0

0000000

.06

.02

.79

.21

. 1 1

.50

.00

.04

.05

.01

.33

. 16

.93

. 25

.05

.50

.67

.27

.31

. 10

. 14

.06

.02

.58

. 20

.09

. 74

. 27

000000

-0-000

-0-0200-0-0

-0-0-0-0

0000000

.03

.01

.90

.23

. 10

.54

.01

.05

.04

.00

.49

.06

.75

.21

.04

.56

.75

. 24

.31

. 16

. 23

.05

.00

.67

.23

.09

. 77

.28

0.-0.0.0.0.0.

-0.-0.0.

-0.

-0,-0,2.0,0,

-0.-0.

-0.-0,-0.-0.

0.0.00.0.0.0

.010194230954

01050301

.48

. 1 1

.41

. 18

.04,57. 75

. 21

.30

. 15

. 24

.06

.00

. 72

.24

.08

.76

. 27

-0-00000

-0-00

-0

-0-0

100-0-0

-0-0-0-0

0000000

.01

.01

.93

. 22

.08

.51

.02

.05

.02

.01

.36

.06

.99

. 16

.03

.54

.71

. 18

.27

. 10

. 19

.07

.01

. 71

.24

.08

.72

. 26

42

APPE

ND

IX

I

REAL GNPREAL DOMESTIC DEMANDGNP DEFLATORSHORT-TERM INTEREST RATE (%)LONG-TERM INTEREST RATE (%)NOMINAL EFFECTIVE EXCHANGE RATE I/.


02/23/1986Table A3. Increase of Japanese Government Spending by 1 Percent of GNP (continued)


1988 1989 1990 1991 1992 1993 1994 1995


GERMANY (CONTINUED)



REAL GNPREAL DOMESTIC DEMANDGNP DEFLATORSHORT-TERM INTEREST RATE (%)LONG-TERM INTEREST RATE (%)NOMINAL EFFECTIVE EXCHANGE RATE I / . . .



REAL GNPREAL DOMESTIC DEMANDGNP DEFLATORSHORT-TERM INTEREST RATE (%)LONG-TERM INTEREST RATE (%)NOMINAL EFFECTIVE EXCHANGE RATE I / .


0.000

000000

0000

000000

0000

.00

. 01

.02

.03

.06

.01

. 1 2

.03

.07

. 29

.04

.02

.03

.01

. 27

. 14

. 19

. 04

.07

. 23

.09

.05

. 1 2

.07

0,0.

-0.-0,

0000.0.

-0,

00,0.0.

000.0.0.

-0.

0.000

,03.01.01, 03

. 18

. 10

. 33

.08

.08,32

.08

.05

.08

.04

. 28

. 19

.48

.08

.08

. 2 2

.07

.05

. 14

. 1 2

0,0.0.

-0.

0000.0.

-0.

0000

000,0.0.-0

0000

.04

.03

.01

. 00

. 25

. 16

. 62

. 13

. 08

.35

. 1 1

.07

. 1 1

.07

. 21

. 1 2

. 79

. 1 2

.09

. 19

.07

.03

. 14

.09

0000

00000

-0

0000

0010Q

-0

0-000

.04

.03

.02

. 01

.26

. 1 7

.92

. 17

.08

. 39

. 14

.08

. 13

.07

. 1 1

. 04

.06

. 15

.09

. 16

.08

.00

. 1 1

.04

0.0.00.

0010.0.

-0.

0000

0-0

1 ,0.0-0

0-00

-0

.05

.03

.02

.00

. 21

. 14

. 19

. 20

.08

. 44

. 15

.08

. 1 2

.05

.04

.02

. 24

. 17

.OS

. 1 1

.08

.03

. 10

.01

0.0.0

-0.

0010.0.

-0.

0.0.00

-0-0

1 .0.0

-0.

0-00

-0

.05

.02

.03

.00

. 1 1

.06

.38

.21

.07

.48

. 14

.05

.09

.00

.01

.07

.34

. 18

.09

.07

.08

.05

.08

.05

000

-0

0-0

10.0,

-0.

000-0

-0-0

100

-0

0-00

-0

.06

.01

. 04

. 01

.00

.03

.45

. 20

.06

.50

. 1 2

.02

.06

.04

.02

.07

.35

. 18

.08

. 04

.07

.06

.07

.06

0.0.0.

-0

-0-0

10.0.

-0.

0.-00

-0

-0-0

1 .0,0.

-0.

0.-0.0

-0

.08

.01

.06

.01

.08

. 10

.39

. 18

.05

.49

. 10

.01

.03

.08

.02

.06

.28

. 1 7

.07

.01

.06

.07

.07

.05

43


APPE

ND

IX

I


02/23/1988Table A3. Increase of Japanese Government Spending by 1 Percent of GNP (concluded)


1988 1989 1990 1991 1992 1993 1994 1995

TOTAL INDUSTRIALS


OF BASELINE GNP



0.43 0.41 0.27 0.11 -0.02

-0.01 -0.02 -0.02 -0.01 -0.01

-0.10 -0.12 -0.11

-0.01 -0.01 -0.01

REAL GDPREAL DOMESTIC DEMAND.. .. . . .GNP DEFLATORPRICE INDEX OF EXPORTS (IN $)REAL EXPORTSREAL IMPORTS . . . .INTEREST PAYMENTS AS A PERCENTAGE

OF EXPORT VALUES

0.100 060 230.180 400 28

-0.07

00 .00 .00

-n

1 2, 0857

. 52493 1

.06

0.110. 070 900 .840 440 25

0.01

0.100 .041 161 . 070 . 370 . 07

0.09

0. 080.011 331 . 1 90 . 30-0. 07

0.15

0 .-0 ,

1i0 .

-0 .

n

.07

.0239

, 22. 25, 1 6

19

0 .-0 .

11 .0 .

-0 .

n

. 06

. 0337

. 1 72320

??

0 . 04-0. 04

1 271 . 060 . 22

-0.19

0. 23






0.010.070.05

0. 270.01

0.100. 35

0.030.080.06

0. 270.00

0.331 . 04

0.010.060.04

0. 20-0.00

0.571 .56

0.010.030.02

0.09-0.01

0.781 .82

0.010.01-0.00

0.00-0.01

0.921 .85

0.01 0.01 0.00-0.00 -0.00 0.01-0.01 -0.01 0.00

-0.06 -0.09 -0.10-0.01 -0.01 -0.01

44

0.991 .69

0.981 . 44

0.911 . 1 7

AP

PE

ND

IX

I


02/23/1988Table A4. Increase of 5 Percent in the Japanese Money Supply


1988 1989 1990 1991 1992 1993 1994 1995


UNITED STATES



JAPAN

REAL GNPREAL DOMESTIC DEMANDGNP DEFLATORSHORT-TERM INTEREST RATE (%)....LONG-TERM INTEREST RATE (X)NOMINAL EFFECTIVE EXCHANGE RATEEXCHANGE RATE (S/VEN)


I/ .

GERMANY

REAL GNP ,REAL DOMESTIC DEMANDGNP DEFLATORSHORT-TERM INTEREST RATE (X) ,LONG-TERM INTEREST RATE (%)NOMINAL EFFECTIVE EXCHANGE RATE I/.EXCHANGE RATE ($/DM)

-00-0-0-00

-00-0-0

100-0-0-4-4

0000

00-0-0-00-0

. 1 1

.01

.08

.06

.08

.99

.01

.00

.04

.03

.09

.61

.70

.29

.08

.81

.79

. 26

. 24

. 33

.31

.04

. 10

.03

.01

.07

.29

.23

-0.-0.-0.-0.-0.0.

-0.-0.-0.-0.

1 .0.1 .

-0.-0.-4.-4.

0.0.0.0.

-0.0.-0.-0.-0.0.-0.

150417080896

02000704

37867414077471

29414153

09020907072426

-0-0-0-0-00

-00-0-0

102-0-0-4-4

0000

-0-0-0-0-00-0

. 13

.05

.26

. 10

.07

.93

.02

.01

.06

.04

.05

.67

.79

.08

.06

.79

.75

.24

.43

.28

.47

. 12

.04

. 16

.09

.07

.22

.26

-0-0-0-0-00

-00-0-0

003-0-0-4-4

0000

-0-0-0-0-00-0

.08

.02

.32

. 10

.07

.90

.01

.02

.05

.02

.58

.31

.63

.06

.06

.88

.82

. 20

.42

.08

.30

. 10

.04

.22

. 10

.06

.22

.23

-00-0-0-00

-00-0-0

0-04-0-0-4-4

00-00

-0-0-0-0-00-0

.03

.00

.35

. 10

.06

.89

.00

.03

.04

.01

. 19

.00

. 17

.06

.05

.94

.87

. 16

.40

. 12

. 12

.06

.02

.26

. 10

.05

.24

.20

-0.0.-0.-0.-0.0.

0.0.-0.0.

-0.-0.4 .-0.-0.-4.-4.

0.0.-0.-0.

-0.-0.-0.-0.-0.0.-0.

010236090590

00030200

06214307059890

14321901

04012710052619

-0.0.-0.-0.-0.0.

0.0.-0.0.

-0.-0.4.-0.-0.-4.-4.

0.0.-0.-0.

-0.-0.-0.-0.-0.0.-0.

000234090593

00030201

17294808059791

12262107

04012710052919

-0.0.-0.-0.-0.0.

0.0.-0.0.

-0.-0.4.-0.-0.-4.-4.

0.0.-0.-0.

-0.-0.-0.-0.-0.0.-0.

010132080497

00020201

17274309049591

1 1222009

05022509043120

45A

PPEN

DIX

I



02/23/1988Table A4. Increase of 5 Percent in the Japanese Money Supply (continued)


1988 1989 1990 1991 1992 1993 1994 1995


GERMANY (CONTINUED)


OTHER MAJOR INDUSTRIAL COUNTRIES(CANADA. FRANCE, ITALY AND THE UNITEDKINGDOM)


(AS A PERCENT OF BASELINE GNP)CURRENT ACCOUNT BALANCEGEN. GOV. FINANCIAL BALANCE.,PRIVATE SAVINGGROSS PRIVATE INVESTMENT




00.00

000000

0000

00000.0

0000

.01

.02

.02

.01

.00

.02

.08

.01

.07

.63

.03

.00

.01

.01

.37

. 19

. 18

.05

.07

.64

. 12

.06

. 16

. 10

-0.-0.-0.-0.

-0.-0.-0.-0.-0.0.

-0.-0.-0.-0.

-0.-0.-0.-0.-0.0.

-0.-0.-0.-0.

06010601

170824060767

09040703

342338070760

07061716

-0.-0.-0.-0.

-0.-0.-0.-0.-0.0.

-0.-0.-0.-0.

-0.-0.-0.-0.-0.0.

-0.-0.-0.-0.

05030604

2617441 10775

10061 208

1 71054090757

06021 209

-0-0-0-0

-0-0-0-0-00

-0-0-0-0

-00

-0-0-00

-00

-0-0

.04

.02

.05

.03

.25

. 1 7

.62

. 13

.06

.83

. 1 1

.06

. 12

.08

.03

.02

.62

.09

.06

.54

.06

.01

.08

.01

-0,-0,-0,-0.

-0.-0.-0.-0.-0.0,

-0.-0.-0.-0.

0.0.

-0.-0.-0.0.

-0.0,

-0.0,

.03

.01

.03

.01

, 16. 10,75, 13.05.87

. 1 1

.05

. 10

.04

,02.08,64.09,06,53

.06

.03

.05

.04

-0-0-00

-0-0-0-0-00

-0-0-00

00-0-0-00

-00

-00

.03

.01

.02

.00

.04

.00

.80

. 12

.05

.87

.09

.02

.06

.01

.02

.08

.60

.08

.05

.53

.06

.03

.04

.05

-0-0-00

00-0-0-00

-00-00

-00-0-0-00

-00-00

.04

.01

.02

.01

.07

.09

.74

.09

.05

.83

.07

.01

.02

.06

.01

.04

.55

.08

.05

.54

.06

.03

.05

.03

-0-0-00

0.0,

-0.-0,-00

-00,0.0,

-0,0.

-0,-0,-0.0,

-00-00,

.05

.01

.03

.01

. 14

. 14

.62

.06

.04

. 77

.05

.03

.01

.09

.05

.00

.50

.07

.05

.55

.05

.02

.06

.01

-p-CTN


APPE

ND

IX

I


02/23/1988Table A4. Increase of 5 Percent in the Japanese Money Supply (concluded)


1988 1989 1990 1991 1992 1993 1994 1995

TOTAL INDUSTRIALS

REAL GNPCURRENT ACCOUNT BALANCE. AS A PERCENT

OF BASELINE GNP



0.20 0.22 0.15 0.07 0.01 -0.03 -0.04 -0.03

0.02 0.02 0.01 0.00 0.00 -0.00 0.00 0.00

REAL GDP , . .REAL DOMESTIC DEMANDGNP DEFLATORPRICE INDEX OF EXPORTS (IN $)REAL EXPORTSREAL IMPORTS . .INTEREST PAYMENTS AS A PERCENTAGE

OF EXPORT VALUES

00o-000

0.

03.0010.80. 1303

. 09

-0 01-0.060 07

-0.91-0.14-0 31

0.05

-0-n0

-n-n-n

-0

03.0810.84. 18. 40

.01

-0. 03-0 070 14-0.72-0.15-0 33

-0.07

-0.01-0. 050.18-0.59-0.08-0.21

-0.10

0. 00-0.020. 23

-0.51-0.02-0.09

-0.11

n-nn

-nn

-n

-0

. 01

.00

. 28

.46

.02

.02

. 10

0.010.010.33

-0.440.030.01

-0.09






0.020.030.01

0.100.01

-0.63-1 .38

0.00-0.04-0.04

0.050.02

-0.58-2.10

0.01-0.05-0.06

-0.010.02

-0.53-1 .96

0.02-0.03-0.05

-0.040.01

-0.49-1 .49

0.02-0.00-0.03

-0.050.01

-0.46-1 .02

0.020.01

-0.01

-0.030.00

-0.44-0.69

0.020.020.00

-0.010.00

-0.43-0.54

0.010.020.01

0.000.00

-0.41-0.51

47 -

APPEN

DIX

I


02/23/1988 Table A5. Increase of German Government Spending by 1 Percent of GNP


1988 1989 1990 1991 1992 1993 1994 1995


UNITED STATES

REAL GNPREAL DOMESTIC DEMANDGNP DEFLATOR ,SHORT-TERM INTEREST RATE (%)LONG-TERM INTEREST RATE (%)NOMINAL EFFECTIVE EXCHANGE RATE I/


JAPAN

REAL GNPREAL DOMESTIC DEMANDGNP DEFLATORSHORT-TERM INTEREST RATE (%)LONG-TERM INTEREST RATE (%)NOMINAL EFFECTIVE EXCHANGE RATE 1/ .EXCHANGE RATE ($/YEN)

(AS A PERCENT OF BASELINE GNP)CURRENT ACCOUNT BALANCEGEN. GOV. FINANCIAL BALANCE.PRIVATE SAVINGGROSS PRIVATE INVESTMENT,...

GERMANY

REAL GNPREAL DOMESTIC DEMANDGNP DEFLATORSHORT-TERM INTEREST RATE (%)LONG-TERM INTEREST RATE (%)NOMINAL EFFECTIVE EXCHANGE RATE I / ,EXCHANGE RATE ($/DM)


00000-0

0000

00000

-00

0000

0.1 .0.0.0,0,0.

.08

.03

.05

.03

.01

. 17

.01

.01

.02

.02

. 12

.06

.07

.03

.01

. 14

.00

.03

.02

.04

.03

.82

.60

. 27

. 24

.06

.7985

00000-0

0000

00000

-0.-0

0000

0.1 .0.0.0.0,0.

. 10

.05

. 13

.05

.01

. 16

.01

.01

.04

.03

. 19

. 1 1

. 18

.05

.01

. 15

.02

.05

.05

.07

.07

62.40,66. 29.06,7278

00000-0

0000

00000

-0-0

0000

0010000

.09

.04

.20

.07

.02

. 12

.01

.00

.04

.03

. 18

. 1 1

. 30

.06

.01

. 16

.05

.04

.05

.07

.07

. 21

.91

. 00

.29

. 05

.61

.65

00000-0

0-000

00000

-0-0

0000

-0010000

.06

.03

. 27

.08

.02

.08

.00

.01

.03

.02

. 1 2

.06

.38

.06

.01

. 16

.07

.04

.05

.04

.05

. 12

.48

.20

.27

.04

.50

.53

00000

-0

-0-000

0000.0

-0.-0.

0.00.0,

-0.0.1 .0.0.0.0.

.04

.01

. 31

.09

.02

.04

.00

.01

.02

.01

.06

.02

.43

.06

.01

. 15

.09

.03

.04

.02

.03

.312024,24,03,4242

0.-0.0.0.0.-0.

-0.-0.0.0.

0.-0.0.0.0.-0.-0.

0.0.0.0.

-0.0.1 .0.0.0.0.

020133090201

01020200

02024605011309

03030000

38061 720033432

0-00000

-0-00

-0

-0-0000

-0.-0

00

-0,-0

-0,0.1 .0.0.0.0.

.00

.01

.34

.09

.02

.02

.01

.02

.01

.00

.00

.03

.45

.05

.01

. 1 1

.09

.03

.02

.00

.01

.350204

, 18,02. 2724

-0-00000

-0-00-0

-0-0000

-0-0

000-0

-0000000

.00

.01

.34

.08

.02

.05

.01

.02

.01

.01

.00

.03

.44

.05

.01

.08

.08

.03

.02

.00

.01

.29

.02

.88

. 16

.02

.20

. 15

48

APPEN

DIX

I


02/23/1986Table A5. Increase of German Government Spending by 1 Percent of GNP (continued)


1988 1989 1990 1991 1992 1993 1994 1995


GERMANY (CONTINUED)


OTHER MAJOR INDUSTRIAL COUNTRIES(CANADA, FRANCE. ITALV AND THE UNITEDKINGDOM)


(AS A PERCENT OF BASELINE GNP)CURRENT ACCOUNT BALANCEGEN. GOV. FINANCIAL BALANCE..PRIVATE SAVINGGROSS PRIVATE INVESTMENT.....


REAL GNPREAL DOMESTIC DEMANDGNP DEFLATORSHORT-TERM INTEREST RATE (%)LONG-TERM INTEREST RATE (%)NOMINAL EFFECTIVE EXCHANGE RATE 1/.


•0•000

00000•0

0000

000000

0000

.50

.69

.35

. 15

. 15

.08

.09

.04

.02

.08

.06

.03

.06

.04

. 41

. 24

. 18

.05

.02

.08

. 1 1

.07

. 16

. 12

-0-000

00000-0

0000

00000-0

0000

.49

.56

.32

.25

.24

. 16

.23

.08

.02

.07

.08

.06

. 10

.08

.38

.28

.41

.08

.02

.05

.06

.07

. 17

. 18

-0-000

00000-0

0000

00000

-0

0000

.42

.51

. 19

. 10

. 23

. 16

.39

.09

.02

.07

. 08

.06

. 10

.08

.20

. 13

.62

. 10

.03

.02

.04

.03

. 1 2

. 1 1

-0-00-0

00000-0

0.0.0.0.

0.-0,0,0,0.0.

0.-0.0.0.

.34

.48

.08

.06

. 15

.09

.52

. 10

.02

.08

.08

.05

.08

.05

.03

.02

.73

. 1 1

.03

.00

.04,01,07,02

-0-00-0

00000-0

0000

-0-00000

0-00-0

. 27

.45

.01

. 16

.05

.01

.60

.09

.02

. 10

.07

.03

.04

.00

.06

. 10

.77

. 1 1

.03

.02

.04

.03

.03

.04

-0.-0.-0.-0.

-0.-0.0.0.0.-0.

0.0.0.-0.

-0.-0.0.0.0.0.

0.-0.0.-0.

22410019

04066108011 1

05010104

091373100203

04040107

-0.-0.0.-0.

-0.-0.0.0.0.-0.

0.-0.-0.-0.

-0.-0.0.0.0.0.

0.-0.0.-0.

IB370117

09105606011 2

04010106

071066090204

03040107

-0-00-0

-0-0000-0

0.-0.-0.-0,

-0.-0.0.0.0.0.

0.-0.0.

-0.

. 15

.33

.04

. 13

. 10

. 1 1

.48

.05

.01

. 1 2

.03

.02

.02

.07

.03

.05

.57

. 0802.04

.02,040204


49A

PPEND

IX

I


02/23/1988Table A5. Increase of German Government Spending by 1 Percent of GNP (concluded)


1988 1989 1990 1991 1992 1993 1994 1995

TOTAL INDUSTRIALS


OF BASELINE GNP



0.22 0.24 0.16 0.07 -0.00 -0.05 -0.06 -0.05

-0.01 -0.01 -0.00 -0.00 0.00 0.00 -0.00 -0.00

REAL GDPREAL DOMESTIC DEMANDGNP DEFLATORPRICE INDEX OF EXPORTS (IN $)REAL EXPORTSREAL IMPORTSINTEREST PAYMENTS AS A PERCENTAGE

OF EXPORT VALUES

00.0.000

-0,

.04

.04

. 19

.49

. 1 7

. 22

,09

0 . 040. 030.360. 620.150.15

-0.06

0-0n00

-n

-0

.0201.50.6704Ofi

n?

-0.-0.0.0.-0.-0.

0.

nnITiSflPRDR7R

03

-0. 02-0.080.610.63-0 14-0.41

0.06

-0.03-0.090.580.58

-0.15-0.44

0.07

-0.03-0. 090.540.52-0.12-0.41

0.08

-0.02-0.080.480.45

-0.07-0.32

0.07


0.020.060.04

0.010. 040.03

-0.00-D. 00-0.00

-0.01-0.04-0.04

-0.01-0.06-0.05

-0.00-0.06-0.06

-0.00-0.05-0.05

0.00-0.03-0.03

50



0.19-0.00

0. 200.00

0.120.01

0.030.01

-0.050.01

-0.090.01

-0.100.00

-0.090.00



0. 231 .07

0.3B1 .00

0.500.64

0.580.29

0.600.07

0.58-0.02

0.53-0.01

0.460.05

APPE

ND

IX

I


02/23/1988Table A6. Increase of 5 Percent in the German Money Supply


1988 1989 1990 1991 1992 1993 1994 1995


UNITED STATES



JAPAN

REAL GNPR E A L DOMESTIC DEMANDGNP DEFLATORSHORT-TERM INTEREST RATE (%)LONG-TERM INTEREST RATE (%)NOMINAL EFFECTIVE EXCHANGE RATE I/.EXCHANGE RATE (S/YEN)

(AS A PERCENT OF BASELINE GNP)CURRENT ACCOUNT BALANCEGEN. GOV. F I N A N C I A L BALANCE.PR IVATE SAVINGGROSS PRIVATE INVESTMENT....

GERMANY

REAL GNPRE A L DOMESTIC DEMANDGNP DEFLATORSHORT-TERM INTEREST RATE (%)LONG-TERM INTEREST RATE (%)NOMINAL EFFECTIVE EXCHANGE RATE I / .EXCHANGE RATE ($/DM)

000000

0000

0000000

0000

2100.0.6,6

. 1 1

.01

.05

.05

.04

.88

. 01

. 00

.04

.03

. 00

.02

.05

.01

.04

.95

.07

.01

.00

. 00

.00

. 17

.04

.93

.43

. 10

.04

. 1 2

-0-0-0-0-00.

-0,0-0-0

-0-0-0-0-00,0,

-0.-0-0.-0.

112

-0,-0.-5.-5,

.08

.02

.07

.04

.04

.82

.00

.00

.04

.03

. 14

.06

. 14

. 04

.04

.88

.05

.05

.03

.05

.04

.86

. 23

.07

. 24

.08

. 7 1

.76

-0.-0.-0-0-00,

0,0.

-0.-0.

-0.-0-0-0-00.0.

-0.-0.-0.-0.

10.3.

-0,-0,-5.-5.

.04

.00

.08

.04

.04

.78

.01

.01

.02

.02

. 13

.08

. 23

.05

. 03

.85

. 06

.03

. 04

.05

.05

. 14

.68

. 1 1, 17,07,56.60

-00-0-0-00

00

-0-0

-0-0-0-0-000

-0-0-0-0

003

-0-0-5-5

.01

.01

.09

.03

.03

. 74

.01

.02

.01

.01

.07

.04

.30

.05

.03

.82

.07

.03

.03

.03

.03

.55

. 17

.88

. 14

.06

.48

.49

-00-0-0-00

00

-0-0

-00

-0-0-000

-0-0-0-0

0-04

-0,-0,-5.-5,

.01

.02

.09

.03

.03

. 71

.01

.02

.01

.00

.01

.01

.34

. 04

.03

.81

.07

.02

.02

.00

.01

. 18

. 14

. 37

. 12

.06

.41

.40

-00

-0-0-00

00

-0-0

00

-0-0-000,

-0-000

-0-04

-0,-0-5.-5

.01

.02

.08

.03

.03

.68

.01

.02

.01

.00

.02

.04

. 34

.04

.03

.80

.08

.02

.01

.01

.01

.01

. 29

.64

. 10

.05

.35

.33

-00-0-0-00,

0,0.-0-0.

0,0-0-0-00.0.

-0.-0,0.0,

-0,-0,4 .-0.-0.-5.-5.

.01

.01

.08

.03

.03

.65

.01

.01

.01

.00

.02

.04

. 33

.04

.03

. 79

. 09

.02

. 01

.01

.02

.08

.31

. 74

.09

.05

.30

.26

-00-0-0-00

00

-0-0

00

-0-0-000

-0-000

-0-04-0-0-5-5

.02

.00

.08

.03

.03

.63

.00

.01

.01

.00

.00

.03

. 31

.04

.03

.79

. 10

.02

.01

.00

.01

.07

.28

.76

.08

.05

. 26

. 21

- 51

-


APPEN

DIX

I


02/23/1988 Table A6. Increase of 5 Percent in the German Money Supply (continued)


1988 1989 1990 1991 1992 1993 1994 1995


GERMANY (CONTINUED)

(AS A PERCENT OF BASELINE GNP)CURRENT ACCOUNT BALANCEGEN. GOV. FINANCIAL BALANCE..PRIVATE SAVINGGROSS PRIVATE INVESTMENT....







0.0.0.0.

0.0.0.0.•0.1 .

0.0.0.0.

•1 .0.0.0.0.0.

0.0.0.0.

36626571

040803010507

05030200

105630130661

24164233

0000

-0-0-0-0-00

-0-0-0-0

-0-0-0-0-00

0-0-0-0

. 10

.51

.54

.95

.08

.01

.09

.04

.05

.95

.01

.00

.02

.02

.59

.46

.53

. 12

.06

.67

.03

.07

. 28

.38

0,0,0.0.

-0,-0.-0.-0-00

-0.-0.-0,-0.

-0.-0,-0.-0.-0.0.

0.0.

-0.-0.

. 12

.46

. 27

.61

. 17, 10. 19.06.05.91

.03

.02

.06

.06

.09

.02,61. 10,05,70

,01.02, 1 1, 1 1

0000

-0-0-0-0-00

-0-o-0-0

00-0-0-o0

-00

-00

. 18

.39

.05

.26

. 19

. 13

.31

.08

.05

.91

.05

.03

.08

.07

. 12

. 20

.56

.08

.05

.70

.03

.06

.02

.06

0.0.-0.0.

-0.-0.-0.-0.-0.0.

-0.-0.-0.-0.

0.0.

-0.-0.-0.0.

-0.0.0.0.

22341002

161 142090492

06030805

132145060570

04060010

00-0-0

-0-0-0-0-00

-0-0-0-0

00-0-0-00

-00-00

.23

.27

. 15

. 1 1

.08

.05

.49

.08

.04

.93

.05

.02

.06

.02

.05

. 14

.34

.05

.04

.68

.05

.05

.01

.08

00-0-0

00-0-0-00

-00-00

-00-0-0-00

-00-00

. 22

.22

. 15

. 15

.01

.02

.50

.07

.04

.94

.04

.00

.03

.02

.05

.03

.26

.05

.04

.67

.04

.03

.04

.02

00-0-0

00-0-0-00

-00-00

-0-0-0-0-00

-00-0-0

. 19

. 18

. 13

. 14

.07

.08

.45

.05

.04

.95

.03

.02

.00

.05

. 12

.04

. 22

.04

.04

.67

.03

.02

.07

.02

52


AP

PE

ND

IX

I


02/23/1988 Table A6. Increase of 5 Percent in the German Money Supply (concluded)


1988 1989 1990 1991 1992 1993 1994 1995

TOTAL INDUSTRIALS


OF BASELINE GNP

0.07 0.05 0.03 0.01 -0.00 -0.01 -0.01 -0.01

0.01 0.00 0.00 0.00 0.00 0.00 0.00 0.00




OF EXPORT VALUES

00-0- 100

n

. 10

.09

.0006.59.45

.07

nnn

-nnn

-0

.09

.09

. 24

.69

.49

.44

.04

n00-0nn

-0.

OR09.42.4740.42

.OS

0.070.080.54-0. 360.320.34

-0.06

0.060.070.60-0. 300.240. 24

-0.04

0.050. 050 63-0. 270.180.16

-0.03

0.040.040.64-0. 250.130. 09

-0.01

0.040.030.65-0. 230.080. 02

-0.01

(AS A PERCENT Of BASELINE GDP)CURRENT ACCOUNTTOTAL SAVINGSGROSS PRIVATE INVESTMENT





0.050.120.07

0.06-0.01

-0.68-0.45

0.050.120.07

0.04-0.02

-0.590.26

0.040.100.07

0.03-0.01

-0.500.43

0.020.080.05

0.02-0.01

-0.430.30

0.010.050.04

0.01-0.01

-0.370.12

0.010.030.02

0.01-0.00

-0.330.01

0.000.010.01

0.01-0.00

-0.29-0.05

-0.00-0.00-0.00

0.02-0.00

-0. 25-0.06

53

-A

PPEN

DIX

I


02/23/1988Table A7. Decrease in the World Oil Price by 20 Percent

[PERCENTAGE DEVIATION FROM BASELINE UNLESS OTHERWISE NOTED)

1988 1989 1990 1991 1992 1993 1994 1995


UNITED STATES

REAL GNPREAL DOMESTIC DEMANDGNP DEFLATORSHORT-TERM INTEREST RATE (X)LONG-TERM INTEREST RATE (%)NOMINAL EFFECTIVE EXCHANGE RATE I/.

[AS A PERCENT OF BASELINE GNP)CURRENT ACCOUNT BALANCEGEN. GOV. FINANCIAL BALANCE.PRIVATE SAVINGGROSS PRIVATE INVESTMENT....

JAPAN

REAL GNPREAL DOMESTIC DEMANDGNP DEFLATORSHORT-TERM INTEREST RATE (%)LONG-TERM INTEREST RATE (%)NOMINAL EFFECTIVE EXCHANGE RATE I / ,EXCHANGE RATE (S/VEN)

(AS A PERCENT OF BASELINE GNP)CURRENT ACCOUNT BALANCEGEN. GOV. FINANCIAL BALANCEPRIVATE SAVINGGROSS PRIVATE INVESTMENT

GERMANY

REAL GNPREAL DOMESTIC DEMANDGNP DEFLATORSHORT-TERM INTEREST RATE (%)LONG-TERM INTEREST RATE (%)NOMINAL EFFECTIVE EXCHANGE RATE i /EXCHANGE RATE ($/DM)

000.0.0.3

0,0.0.0.

000•0023

0000

0000011

.89

.69

.06

. 1 1

.50

.01

. 16

. 1 7

. 20

. 21

. 1 4

.45

. 26

. 06

. 5 2

.49

.82

. 1 1

.06

. 01

.03

.84

. 79

. 24

. 24

.46

.46

.05

0.0.0.0.

-0.-3.

0.0.0.0.

00,

-0.-0 ,-0,2.3,

0 .0.0.

-0.

0.0,0.0.

-0.- 1 .0.

89782216,56.03

15212531

.00

. 37

.69

. 1 3

.54

.55,88

.07

.03

.00

. 04

.83

.92

.61

. 34

.50,67.87

0,0,0,0.-0-3

0,0,0.0.

-00

- 1-0-024

0-00

-0

0000

-0-20

.62

.57

.40

. 15

.59

. 16

. 1 7, 19. 20. 22

. 1 1

. 24

.28

. 21

. 54

. 75

. 1 2

.08

. 02

. 01

. 09

.54

.65

.89

. 33

.53

.00

.68

0.0,0.0.

-0,-3.

0.0,0.0.

-00

-2-0-03A

0-00

-0

0000

-0~ 2 i0

. 36, 35.39,09.64.39

, 19, 18, 1312

. 19

. 16

.03

.31

. 54

.02

.49

.08

. 07

.03

. 1 2

. 23

. 36

.97

. 26

. 56

.38

.52

0.0.0.0.

-0.-3.

0.0.0.0.

-00,

-2,-0,-0,3,4 .

0,-0,0,

-0.

0,0,0,0.

-0,-2 .0.

, 182116,00,68,69

, 21, 1 70703

. 17

. 15

.88

.40

.54

.34

.94

.09

. 14

. 10

. 13

.04

. 16

.84

. 16, 59. 78,40

0.0.

-0.-0.-0.-4.

0.0.0.

-0.

-00,

-3,-0.-0,3.5.

0.-0,0.

-0.

-0,0,0,0,

-0.-3 .0.

.09, 14261 2

. 74

.04

23180401

. 10

. 20

. 79

. 50

.55

. 68

.43

. 1 1, 14. 1 4. 1 1

.06

.07

.52

.03

. 64

. 20

. 31

00,

-0.-0.-0-4,

0.0.0,

-0.

-00

-4-0-06

5

0-00

-0

-000-0-0-30

.06

. 1 1

.80

. 26

.79

. 39

. 25

. 20

.02

.02

.00

. 28

.69

.59

.56

.01

.92

. 1 2

. 1 2

. 16

.08

.09

.04

.06

. 13

.68

. 61

. 22

0,0.

-1 .-0,-0-4

0,0 .0,

-0.

00

-5-0-0A6

0-00

-0

-00-0-0-0-40

.07

. 1 1

.41,41.84.72

. 27

. 22

.03,02

.08

.35

.54

.68

.57

. 32

.37

. 13

.09

. 16

.05

. 09

.05

.48

. 30

. 7 1

. 00

. 12

54


APPE

ND

IX

I


02/23/1988Table A7. Decrease in the World Oil Price by 20 Percent (continued)


1988 1989 1990 1991 1992 1993 1994 1995


GERMANY (CONTINUED)


OTHER MAJOR INDUSTRIAL COUNTRIES(CANADA. FRANCE. ITALY AND THE UNITEDKINGDOM)

REAL GNPREAL DOMESTIC DEMANDGNP DEFLATORSHORT-TERM INTEREST RATE (%)LONG-TERM INTEREST RATE (%)NOMINAL EFFECTIVE EXCHANGE RATE I / . . .



REAL GNPR E A L DOMESTIC DEMANDGNP DEFLATORSHORT-TERM INTEREST RATE (%)LONG-TERM INTEREST RATE (%)NOMINAL EFFECTIVE EXCHANGE RATE I / .


0,0,0.0.

00000.2.

0.0.0 .0

000000

0.0,0.0.

.24

. 27

. 23

. 26

.37

. 57

. 36

.03

. 58

.05

.07

. 1 2

.07

. 1 2

.05

. 37

.33

.09

. 53

. 14

.03

.08

.06

.04

0,0.0.0.

00-0-0.-0.2,

0.0.0.0.

0.0

-0.-0-00

0,0.

-0,0.

. 18

.30

. 26

.39

. 34

.56

.52

.06

. 62,06

.07

. 15

.08

. 16

. 18

.42

.55

. 1 1

.57

. 25

.04

. 15

.01

.09

0000

00

-0-0-02

0000

00

-0-0-00

00-00

. 19

. 27

. 18

. 27

. 1 2

. 33

.83

. 1 4

.63

. 10

.06

. 14

.02

.09

. 16

.40

.88

. 16

.61

.41

.06

. 19

.02

. 1 1

0000

-00

- 1-0-02

00

-0-0

00

- 1-0-00

00-00

. 22

. 23

.09

. 10

. 15

.07

. 35

. 26

.66

. 23

.03

. 1 1

.09

.01

.06

.30

.35

. 23

.66

.57

.08

. 24

.08

.08

000-0

-0-0-2-0-02

-00

-0-0

-00

-1-0-00

00-00

. 24

. 19

.03

.02

. 35

. 1 3

. 07

.39

.68

. 44

.02

.06

. 18

.09

.04

. 20

.97

.33

. 7 1

. 7 1

.09

. 26

. 14

.03

0.0.0.

-0 .

-0,-0.-2 ,-0.-0.2 .

-0.0.

-0.-0.

-0.0.

-2 .-0.-0.0 ,

0 .0.

-0.-0.

. 24

. 16,00.08

.44

.23,93.53. 7 1,69

08.05, 26, 13

. 10

. 1 1

. 71

.43

.75

.84

, 13,3020,02

00-0-0

-0-0-3-0-02

-00

-0-0

-00

-3-0-00

0.0,

-0,-0,

. 23

. 15

.02

. 09

.41

. 22

.83

.65

. 73

.97

. 13

.08

.31

. 1 1

. 10

.08

. 52

.55

. 79

.95

. 15

.36

. 24

.03

00-0-0

-0-0-4-0-03

-00

-0-0

-00

-4-0-0

1

00

-0-0

. 20

. 15

.03

.08

. 29

. 1 3

.68

. 75

. 75

. 23

. 15

. 13

.33

. 04

.06

. 08

.35

.67

. 82

. 05

. 17

.43

. 28

.02

55


APPEN

DIX

I


02/23/1988Table A7. Decrease in the World Oil Price by 20 Percent (concluded)


1988 1989 1990 1991 1992 1993 1994 1995

TOTAL INDUSTRIALS


OF BASELINE GNP




OF EXPORT VALUES






0.50 0.47 0.28

0.11 0.11 0.11

0.07 -0.05 -0.09 -0.07 -0.03

0.12 0.12 0.13 0.13 0.13

000000

0

•0.00

10

. 15

.05

.60

. 1 1

. 76

. 25

. 13

. 1 1

.03

.08

. 23

.03

00

-0010

-0

-000

10

.25

.06

.59

.06

. 21

.34

. 23

.05

.06

. 1 1

.95

.06

00.

-0.-0.

1 .0.

-0.

-0.0.0.

2.0.

.27

.06

. 74

. 14

.30

. 38

.35

05.0712

48.09

00

-1 .-0

1 .0

-0

-0.0.0.

2.0.

.26

.05

.09

.47

.31

.39

.50

,05.08. 13

95. 12

00,

-1 .-0,

1 .0.

-0,

-0.0.0.

3.0.

.26

.07

.62,86.35.53

.56

051015

4315

00,

-2- l ,

1 .0.

-0,

-0.0.0.

3.0.

. 26

. 1 1

. 27

.32

.41

.79

.65

.05

. 14

. 19

93, 17

00,

-2.- 1 .

1 .1 .

-0,

-0.0.0.

4.0.

.27, 17.97.82.49. 14

. 77

05. 1824

4419

0.0.

-3.-2.

1 .1 .

-0.

-0.0.0.

4.0.

292568335653

91

062328

9321

-20.00 -20.00 -20.00 -20.00 -20.00 -20.00 -20.00 -20.003.66 3.95 3.27 2.43 1.78 1.30 0.97 0.70

56

APPEN

DIX

I


02/23/1988Table A8. An Increase in Financing Flows to Developing Countries


1988 1989 1990 1991 1992 1993 1994 1995


UNITED STATES



JAPAN

REAL GNPREAL DOMESTIC DEMANDGNP DEFLATORSHORT-TERM INTEREST RATE (%)....LONG-TERM INTEREST RATE (%)NOMINAL EFFECTIVE EXCHANGE RATEEXCHANGE RATE (S/VEN)


I/ .

GERMANY

REAL GNPREAL DOMESTIC DEMANDGNP DEFLATORSHORT-TERM INTEREST RATE (%)LONG-TERM INTEREST RATE (%)NOMINAL EFFECTIVE EXCHANGE RATE I/.EXCHANGE RATE ($/DM)

000000

-0,-0.0,0.

0,0.0,0.0.

-0.-0.

0.0.0.0.

0.0.0.0.0.0.0.

. 18

.06

. 17

.08

.09

.07

.08

. 13

.08

.03

.64

.32

.37

. 15

.06

. 13

. 12

.21

.0433

. 16

1510

. 16

.08, 107562

000000

-0-000

00000-0-0

0000

0000000

.24

. 1 2

.45

. 16

.09

.07

.09

. 13

. 1 1

.07

. 73

.47

.90

. 21

.05

. 16

. 15

. 18

.09

.36

. 27

.25

. 19

.47

. 21

.09

.76

.62

000000

-0-000

00100-0-0

0000

0000000

. 24

. 13

.76

. 23

.07

. 10

. 10

. 15

. 12

.07

.60

. 38

.40

. 25

.03

. 17

. 17

. 17

. 1 1

. 30

. 24

. 26

. 19

.82

. 33

.08

. 72

.57

0.0.1 .0.0.0.

-0.-0.0.0.

0.0.1 .0.0.-0.-0.

0.0.0.0.

0.0.1 .0.0.0.0.

201 10129051 1

1 1171206

40226925021516

15102217

23151 142066146

001000

-0-000

00100-0-0

0000

0010000

. 15

.08

. 13

.31

.03

. 10

. 12

. 19

. 12

.05

.26

.08

.67

.23

.00

.08

. 10

. 16

.08

. 17

. 10

.21

. 1 1

. 26

.46

.03

.44

.33

-0.-0.

1 .0.-0.0.

-0.-0.0.0.

-0.-0.

1 .0.

-0.0.0.

0.0.

-0.-0.

-0.-0.

1 .0.0.0.0.

060210260006

061 10400

2522311 1020201

02020606

08072236002417

-0-000-0-0

-0-00-0

-0-000-000

0-0-0-0

-0-0

10-000

. 1 2

.07

.94

. 21

.03

.04

.06

. 10

.01

.03

.32

.33

.78

.04

.03

. 1 7

. 19

.04

.02

.09

. 15

. 1 2

. 15

.03

.29

.02

.04

.08

-0-000-0-0

-0-00-0

-0-00-0-000

0-0-0-0

-0-000-0-00

. 12

.07

.70

. 15

.05

. 18

.05

.09

.01

.04

. 17

.22

. 19

.00

.03

.31

.38

.06

.02

.04

. 12

.04

.09

.76

.22

.04

. 15

.01

57


APPE

ND

IX

I


02/23/1988 Table A8. An Increase in Financing Flows to Developing Countries (continued)


1988 1989 1990 1991 1992 1993 1994 1995


GERMANY (CONTINUED)

(AS A PERCENT OF BASELINE GNP)CURRENT ACCOUNT BALANCEGEN. GOV. FINANCIAL BALANCE.PRIVATE SAVING ,GROSS PRIVATE INVESTMENT....,


REAL GNPREAL DOMESTIC DEMANDGNP DEFLATORSHORT-TERM INTEREST RATE (%)LONG-TERM INTEREST RATE (%)NOMINAL EFFECTIVE EXCHANGE RATE 1/...





0000

000000

0•000

000000

0•000

.09

. 1 1

. 22

.02

.44

. 22

.30

. 13

. 10

. 18

. 1 7

.07

.34

. 10

. 72

.40

.36

.09

.09

. 17

.22

.04

.46

.20

0-000

00000

-0

0-000

00000-0

0-000

. 10

.07

.25

.08

.65

.45

.80

. 23

.08

.20

. 21

.01

.43

. 22

.63

.48

.84

. 15

.08

. 16

. 10

.06

.46

.31

0.-0.0.0.

0.0.1 .0.0.

-0.

0.0.0.0.

0.0.1 .0.0.-0.

0.-0.0.0.

09052409

674934300623

25024623

41292820071 1

101 1412 1

0-000

00100

-0

0000

00100-0

0-000

.09

.06

.23

.08

.53

.38

.77

.33

.03

.27

.26

.00

.43

. 18

.24

. 13

.56

.23

.04

.03

. 10

. 16

.36

. 10

0-000

0010-0-0

0-000

001000

0-000

. 10

.06

.23

.06

.31

.20

.92

.31

.00

.28

.25

.04

.36

.08

. 16

.05

.59

.23

.02

.05

. 1 1

. 18

.34

.04

0-00-0

-0-010-0-0

0-00-0

-0-0

10

-00

-0-00-0

.02

.02

.02

.03

.25

. 18

.70

. 18

.03

.26

.09

.05

.04

. 10

.28

.23

.34

. 17

.01

. 13

.01

. 16

.04

. 1 1

0,-0,0.

-0.

-0,-o,

1 .0,-0-0

0-0.-0,-0.

-0.-0,0,0.

-0,0.

0-0.0.

-0.

.06

.04,01.09

.54

.47

. 18

.06

.06

. 18

.03

. 13

. 10

.26

.27

.27

.95

. 12

.03

. 16

.04

. 16

.01

. 18

0-00-0

-0-00-0-0-0

-0-0-0-0

-0-000-00

0-00-0

.09

.03

.04

.07

.58

.52

.46

.04

.07

.04

.03

. 16

. 16

.28

. 14

. 14

.48

.06

.05

. 16

.03

. 12

.03

. 12

58


APPEN

DIX

I


02/23/1988Table A8. An Increase in Financing Flows to Developing Countries (concluded)


1988 1989 1990 1991 1992 1993 1994 1995

TOTAL INDUSTRIALS

REAL GNPCURRENT ACCOUNT BALANCE. AS A PERCENT

OF BASELINE GNP



REAL GDPREAL DOMESTIC DEMANDGNP DEFLATORPRICE INDEX OF EXPORTS (IN $}REAL EXPORTSREAL IMPORTSINTEREST PAYMENTS AS A PERCENTAGE

OF EXPORT VALUES






0.40 0.49

0.09 0.07

0.43 0.32 0.22 -0.17 -0.27 -0.21

0.07 0.07 0.07 0.00 0.00 0.00

0.0.0.0.03

0,

0.00

0,0.

0.1 .

.03

. 74

. 33

.46

. 23

.68

,09

.02

.68

.67

, 61.01

. 24

. 35

0.000.03

-0

000

00

01 .

. 06

. 64

. 71

.84

. 33

. 17

.03

.04

.63

.58

. 64

.01

. 63

. 72

0.0.1 .102.

0.

0,0.0

0.0.

1 .1 .

.07

.57

.08

. 19

. 28

. 73

.05

.02

.53

.50

.57

.01

.03

.82

001102

0

000

00

11

.07

. 48

. 34

.43

. 20

. 23

. 1 4

.02

.43

.41

. 43

. 01

. 33

. 77

001101

0

000

00

11

. 07

. 43

.40

.47

. 15

.90

. 19

. 01

.36

.35

. 31

. 01

.43

. 59

0.-0

11

-0-0

0

-0-0-0

-00.

10.

.04

.08

. 18

. 18

.07

.69

. 26

.01

. 1 4

. 13

. 23

.00

.30

.43

0.-000-0-0

0

-0-0-0

-0.-0.

10.

. 03

.06

.84

.89

. 10

.56

. 22

. 02

. 13

. 12

. 31

. 00

. 02

. 1 1

0.-0.0.00.

-0.

0.

-0.-0.-0

-0 .-0.

0 .0.

,05.00.42.58.01. 25

. 16

.01

.08

.07

. 25

.00

6609

59A

PPEN

DIX

I


- 60 - APPENDIX II

APPENDIX II. Equation Listing and Coefficient Values

The following pages present a TROLL listing of the equations, withlists of variable and parameter names. At the end of the equation listingis a printout of the coefficient file, associating parameter names withnumerical values. Variables can either be exogenous or endogenous; thelatter also include "definition" variables which differ only in notrequiring input data. "Coefficients" and "parameters" serve the samefunction. TROLL notation for equations is similar to standard mathematicalnotation.


61 - APPENDIX II

MULTIMOD CONTAINS MODELS FOR EACH OF THE G~3 COUNTRIES (US.JA,AND GR), THE REMAINING G-7 COUNTRIES TAKEN AS A GROUP (LI), THE SMALLERINDUSTRIALS (SI), AND THE WEO DEVELOPING COUNTRIES(RW). WHICH ARE DIVIDEDINTO THE HIGH INCOME OIL EXPORTERS (HO) AND THE REST OF THE DEVELOPINGCOUNTRIES (DC). TRADE IS DISAGGREGATED INTO 3 TYPES OFGOODS: OIL (SUFFIX OIL), PRIMARY COMMODITY EXPORTS OF DEVELOPING COUNTRI ES (COM)AND REMAINING GOODS AND NON-FACTOR SERVICES (M). NOTE THAT THOUGH OIL EXPORTSAND IMPORTS ARE TAKEN INTO ACCOUNT FOR ALL COUNTRIES (ONE WORLD PRICE, POIL INDOLLARS, IS ASSUMED TO APPLY), INDUSTRIAL COUNTRIES ARE ASSUMED NOT TO PRODUCECOMMODITIES.

THE NOTATION IS AS FOLLOWS: VARIABLES HAVE A TWO-LETTER PREFIX FOR THECOUNTRY OR REGION AS GIVEN ABOVE, WHILE COEFFICIENTS HAVE A ON-LETTER PREFIXWITHOUT THE UNDERBAR, AND THEY ARE NUMBERED. THE TRADE SHARE AND DOUBLYWEIGHTED COMPETETIVENESS WEIGHTS (SIJ AND WIJ) IDENTIFY THE COUNTRIES BYTHE INDICES I AND J

SYMBOL DECLARATIONS

ENDOGENOUS:DC_ADC_ASSETSDC_CTOT -DC_DEBT -DC_GDPDC_IMDC_INVESTDC_INVESTCDC_INVESTMDC_IOIL -DC_ITDC_KDC^KCDC_KMDC_NETDEBTDC_NFADC_NNPCAPDC_PDC_PGNPDC_PIMDC_PIMADC_PITDC_PXMDC_PXTDC_QNTDC_WDC_XCOM -DC_XMDC_XMADC_XOIL -DC_XSMDC_XTDC_YCAPGR_AGR_BGR_CGR_C01L -GR_CUGR_CURBALGR_CURBALLGR_ERGR_FMGR_GDEFGR_GDPGR_GEGR_GNPGR_ICOMGR_IMGR_INVESTGR_IOILGR_ITGR_KGR_MOR MERM

domestic absorption- Developing country claims on industrial countriesConsumption expenditure - including publicStock of debt owed to the industrial countriesReal GDPImport volume, manufactures

- Real gross investment- Real gross investment in commodity production- Real gross investment in manufactures productioni mpo r t s of o i lTotal imports priceCapital stockCapital stock in commodity productionCapital stock in maufactures production- Stock of net debt owed to the industrial countriesClaims on foreigners , current $

- Capacity Net National Productabsorption deflatorGDP deflatorManufactures Import pricesMan. Import prices - adj. for nominal world trade discrepancyTotal imports priceManufactures Export pricesTotal exports priceOutput of non-exported goodsReal Wealth (Financial plus discounted future income)Exports of primary commoditiesExport volume, manufacturesMan. Export volume, adj. for world trade discrepancyExport s of o i lF u l l capacity supply of manufactured outputTotal exports volumeCapacity value of real domestic incomeDomestic absorptionPrivate sector holdings of government bondsConsumption expenditureConsumption of o i lCapacity u t i l i z a t i o n

- Current account, in current dollars- Current account, in local currencyExchange rate, $ per local currencyForeign export markets for manufacturesNominal government deficitGross domestic product, in real termsTotal government expenditures, nominalReal gross national productImport volume, commoditiesImport volume, manufactures

- Gross investmentImpo r t s of o i lTotal imports priceReal net c a p i t a l stockMonetary baseMERM weighted effective exchange rate


- 62 - APPENDIX II

GR_NFA - Net claims on foreigners, current $GR_NNP - Net national productGR_NNPCAP - Capacity net national productGR_P - Absorption deflatorGR_PFM - Prices In foreign marketsGR_PGNP - Price level (GNP deflator)GR_PGNPNO - Non-oil GNP deflatorGR_PI - Inflation rate (change In absorption deflator)GR_PIM - Manufactures Import pricesGR_PIMA - Man. Import prices - adj. for nominal world trade discrepancyGR_PIT - Total Imports priceGR_PXM - Manufactures Export pricesGR_PXT - Total exports priceGR_R - Average interest rate, for calculating nominal interest flowsGR_REER - Real effective exchange rateGR_RL - Long-term nominal interest rateGR_RLR - Real ex ante long-term interest rateGR_RS - Short term nominal interest rateGR_RSR - Ex ante real short rateGR_TAX - Government tax receipts, net of non-interest transfersGR_TRATE - Tax rateGR_UCSTCAP - Real user cost of capitalGR_W - Real net wealthGR_XM - Export volume, manufacturesGR_XMA - Man. Export volume, adj. for world trade discrepancyGR_XT - Total exports volumeGR_VCAP - Capacity output (GDP)GR_VD - Real disposable incomeHO_A - domestic absorptionHO_GDP - Real GDPHO_ICOM - Import volume, commoditiesHO_IM - Import volume, manufacturesHO_IT - Total imports priceHO_NFA - Claims on foreigners , current $HO_PIT - Total imports priceHO_PXT - Total exports priceHO_QNT - Output of non-exported goodsHO_XOIL - Exports of oilHO_XT - Total exports volumeJA_A - Domestic absorptionJA_B - Private sector holdings of government bondsJA_C - Consumption expenditureJA_COIL - Consumption of oilJA_CU - Capacity utilizationJA_CURBAL - Current account, in current dollarsJA_CURBALL - Current account, in local currencyJA_ER - Exchange rate, $ per local currencyJA_FM - Foreign export markets for manufacturesJA_GDEF - Nominal government deficitJA_GDP - Gross domestic product, in real termsJA_GE - Total government expenditures, nominalJA_GNP - Real gross national productJA_ICOM - Import volume, commoditiesJA_IM - Import volume, manufacturesJA_INVEST - Gross investmentJA_IOIL - Imports of oilJA_IT - Total imports priceJA_K - Real net capital stockJA_M - Monetary baseJA_MERM - MERM weighted effective exchange rateJA_NFA - Net claims on foreigners, current $JA_NNP - Net national productJA_NNPCAP - Capacity net national productJA_P - Absorption deflatorJA_PFM - Prices in foreign marketsJA_PGNP - Price l e v e l (GNP deflator)JA_PGNPNO - Non-oil GNP deflatorJA_PI - Inflation rate (change in absorption deflator)JA_PIM - Manufactures Import pricesJA_PIMA - Man. Import prices - adj. for nominal world trade discrepancyJA_PIT - Total imports priceJA_PXM - Manufactures Export pricesJA_PXT - Total exports priceJA_R - Average interest rate, for c a l c u l a t i n g nominal interest flowsJA_REER - Real effective exchange rateJA_RL - Long-term nominal interest rateJA RLR - Real ex ante long-term interest rate


- 63 - APPENDIX II

JA_RS - Short term nominal interest rateJA RSR - Ex ante real short rateJA_TAX - Government tax receipts, net of non-interest transfersJA_TRATE - Tax rateJA_UCSTCAP - Real user cost of capitalJA_W - Real net wealthJA_XM - Export volume, manufacturesJA_XMA - Man. Export volume, adj. for world trade discrepancyJA_XT - Total exports volumeJA_VCAP - Capacity output (GDP)JA_YD - Real disposable incomeLI_A - Domestic absorptionLI_B - Private sector holdings of government bondsLI C - Consumption expenditureLI_COIL - Consumption of o i lLI_CU - Capacity u t i l i z a t i o nLI_CURBAL - Current account, in current dollarsLI_CURBALL - Current account, in local currencyL1_ER - Exchange rate, $ per local currencyLI_FM - Foreign export markets for manufacturesLI_GDEF - Nominal government d e f i c i tLI_GDP - Gross domestic product, in real termsLI_GE - Total government expenditures, nominalLI_GNP - Real gross national productLI_1COM - Import volume, commoaitiesLI_IM - Import volume, manufacturesLI_INVEST - Gross investmentLI_IOIL - Import s of o i lL I _ I T - Total imports priceLI_K - Real net c a p i t a l stockLI_M - Monetary baseLI_MERM - MERM weighted e f f e c t i v e exchange rateLI_NFA - Net claims on foreigners, current $LI_NNP - Net national productLI_NNPCAP - Capacity net national productLI_P - Absorption d e f l a t o rLI PFM - Prices in foreign marketsLI~PGNP - Price l e v e l (GNP deflator)LI_PGNPNO - Non-oil GNP d e f l a t o rLI_PI - I n f l a t i o n rate (change in absorption deflator)LI_PIM - Manufactures Import pricesLI_PIMA - Man. Import prices - adj. for nominal world trade discrepancyL1_PIT - Total imports priceLI_PXM - Manufactures Export pricesLl_PXT - Total exports p r i c eLI R - Average interest rate, for c a l c u l a t i n g nominal interest flowsL1_REER - Real e f f e c t i v e exchange rateLI RL - Long-term nominal interest rateLI_RLR - Real ex ante long-term interest rateLI_R5 - Short term nominal interest rateLI_RSR - Ex ante real short rateLI_TAX - Government tax receipts, net of non-interest transfersLl_TRATE - Tax rateLI_UCSTCAP - Real user cost of c a p i t a lLI_W - Real net w e a l t hLI_XM - Export volume, manufacturesLI_XMA - Man. Export volume, adj. for w o r l d trade discrepancyLI_XT - Total exports volumeLI_VCAP - Capacity output tGDP)LI_VD - Real disposable incomePCOM - Price of primary commodity exports of LDCs, US d o l l a r indexPOIL - Price of o i l , in US d o l l a r s (1980=1)RW_ER - Exchange rate S per l o c a l currencyRW_FM - Foreign export markets for manufacturesRW_IM - Import volume, manufacturesRW_IT - Total imports priceRW PFM - Prices in foreign marketsRW_PIM - Manufactures Import pricesRW_PIMA - Man. Import prices - adj. for nominal w o r l d trade discrepancyRW_PIT - Total imports priceRW_PXM - Manufactures Export pricesRW_PXT - Total exports p r i c eRW_REER - Real e f f e c t i v e exchange rateRW_XCOM - Exports of primary commoditiesRW_XM - Export volume, manufacturesRW_XMA - Man. Export volume, adj. for w o r l d trade discrepancyRW_X01L - Exports of oil


- 64 - APPENDIX II

RW_XT - Total exports volumeSI_A - Domestic absorptionSI_B - Private sector holdings of government bondsSI_C - Consumption expenditureSI_COIL - Consumption of oilSI_CU - Capacity u t i l i z a t i o nSI_CURBAL - Current account, in current dollarsSI_CURBALL - Current account, in local currencySI_ER - Exchange rate, $ per local currencySI_FM - Foreign export markets for manufacturesSI_GDEF - Nominal government deficitSI_GDP - Gross domestic product, in real termsSI_GE - Total government expenditures, nominalSI_GNP - Real gross national productSI_ICOM - Import volume, commoditiesSI_IM - Import volume, manufacturesSI_INVEST - Gross investmentSI_IOIL - Imports of oilSI_IT - Total imports priceSI_K - Real net capital stockSI_M - Monetary baseSI_MERM - MERM weighted effective exchange rateSI_NFA - Net claims on foreigners, current $SI_NNP - Net national productSI_NNPCAP - Capacity net national productSI_P - Absorption deflatorSI_PFM - Prices in foreign marketsSI_PGNP - Price level (GNP deflator)SI_PGNPNO - Non-oil GNP deflatorSI_PI - Inflation rate (change in absorption deflator)SI_P1M - Manufactures Import pricesSI_PIMA - Man. Import prices - adj. for nominal world trade discrepancySI_PIT - Total imports priceSI_PXM - Manufactures Export pricesSI_PXT - Total exports priceSI_R - Average interest rate, for cal c u l a t i n g nominal interest flowsSI_REER - Real effective exchange rateSI_RL - Long-term nominal interest rateSI_RLR - Real ex ante long-term interest rateSI_RS - Short term nominal interest rateSI_RSR - Ex ante real short rateSI_TAX - Government tax receipts, net of non-interest transfersSI_TRATE - Tax rateSI_UCSTCAP - Real user cost of c a p i t a lSI_W - Real net wealthSI_XM - Export volume, manufacturesSI_XMA - Man. Export volume, adj. for world trade discrepancySI_XT - Total exports volumeSI_VCAP - Capacity output (GDP)SI_VD - Real disposable incomeUS_A - Domestic absorptionUS_B - Private sector holdings of government bondsUS_C - Consumption expenditureUS_COIL - Consumption of oilUS_CU - Capacity u t i l i z a t i o nUS_CURBAL - Current account, in current d o l l a r sUS_ER - Exchange rate, $ per local currencyUS_FM - Foreign export markets for manufacturesUS_GDEF - Nominal government deficitUS_GDP - Gross domestic product, in real termsUS_GE - Total government expenditures, nominalUS_GNP - Real gross national productUS_ICOM - Import volume, commoditiesUS_IM - Import volume, manufacturesUS_INVEST - Gross investmentUS_IOIL - Imports of oilUS_IT - Total imports priceUS_K - Real net capital stockUS_M - Monetary baseUS_MERM - MERM weighted effective exchange rateUS_NFA - Net claims on foreigners, current $US_NNP - Net national productUS_NNPCAP - Capacity net national productUS_P - Absorption deflatorUS_PFM - Prices in foreign marketsUS~PGNP - Price level (GNP deflator)US PGNPNO - Non-oil GNP deflator


- 65 - APPENDIX II

US_PI - I n f l a t i o n rate (change in absorption deflator)US_PIM - Manufactures Import pricesUS_PIMA - Man. Import prices - adj. for nominal world trade discrepancyUS_PIT - Total imports priceUS_PXM - Manufactures Export pricesU5_PXT - Total exports priceUS_R - Average interest rate, for calculating nominal interest flowsUS REER - Real effective exchange rateUS_RL - Long-term nominal interest rateUS_RLR - Real ex ante long-term interest rateUS_RR - Average real interest rate, for calculating real Debt interestUS_RS - Short term nominal interest rateUS_RSR - Ex ante real short rateUS_TAX - Government tax receipts, net of non-interest transfersUS_TRATE - Tax rateUS_UCSTCAP - Real user cost of capitalUS_W - Real net wealthUS_XM - Export volume, manufacturesUS_XMA - Man. Export volume, adj. for world trade discrepancyUS_XT - Total exports volumeUS_VCAP - Capacity output (GDP)US_YD - Real disposable incomeWTRADE - World trade discrepancy, in nominal termsWTRADER - World trade discrepancy, in real terms

EXOGENOUS:DC_ASSETRAT - Target ratio of assets to importsDC_DELTA - Depreciation rate for capital stockDC_KCOMSHR - Historical share of investment in commodity productionDC_OILSHR - O i l share of DC ' s total importsDC_XOILSHR - DC's share of total RW oil exportsDC_XTNDHIST - baseline $ value of exports used in Debt calculationDUM - Switch that makes the tax rate endogenousDUM74GR_BRATIO - Target ratio of nominal govt debt to GNPGR_CTRATE - Corporate tax rateGR_DELTA - Depreciation rate for capital stockGR_G - Real government spending on goods and services (NA)GR_GEXOG - Other government spending, in real termsGR_MT - Target level of the monetary baseGR_PIBAR - Long run expected inflationGR_PRODO1L - Output of oilGR_TXCRED - Tax creditsGR_XOIL - Exports of oilHO_IOIL - Import volume, oilHO_XM - Export volume, manufacturesJA_BRAT10 - Target ratio of nominal govt debt to GNPJA_CTRATE - Corporate tax rateJA_DELTA - Depreciation rate for capital stockJA_G Real government spending on goods and services (NA)JA_GEXO& - Other government spending, in real termsJA_MT - Target level of the monetary baseJA_PIBAR - Long run expected inflationJA_PRODOIL - Output of oilJA_TXCRED - Tax creditsJA_XOIL - Exports of oilLI_BRATIO - Target ratio of nominal govt debt to GNPLI_CTRATE - Corporate tax rateL1_DELTA - Depreciation rate for capital stockLI_G - Real government spending on goods and services (NA)LI_GEXOG - Other government spending, in real termsLI_MT - Target level of the monetary baseLI_PIBAR - Long run expected i n f l a t i o nL1_PRODOIL - Output of oilLI_TXCRED - Tax creditsL1_XOIL - Exports of oilRES_DC_ASSETS RES_DC_CTOT RES_DC_CURBAL RES_DC_DEBT RES_DC_INVESTC RES_DC_IOILRES_DC_NFA RES_DC_PGNP RES_DC_PIM RES_DC_P1MA RES_DC_PXM RES_DC_QNT RES_DC_XCOIRES_DC_XOIL RES_DC_XSM RES_GR_A RES_GR_B RES_GR_C RES_GR_COIL RES_GR_ERRES_GR_GDP RES_GR_GNP RES_GR_ICOM RES_GR_IM RES_GR_INVEST RES_GR_IOIL RES_GR_I"RES_GR_K RES_GR_M RES_GR_NFA RES_GR_P RES_GR_PGNP RES_GR_PIM RES_GR_PXMRES_GR_RL RES_GR_RS RES_GR_TAX RES_GR_TRATE RES_GR_W RES_GR_XM RES_GR_XTRES_GR_VCAP RES_HO_ICOM RES_HO_IM RES_HO_NFA RES_HO_PIT RES_HO_PXT RES_HO_QNTRES_JA _ A RES_JA_B RES_JA_C RES_JA_COIL RES_JA_ER RES_JA_GDP RES_JA_GNPRES~JA_1COM RES_JA_1M RES_JA_lNVEST RES_JA_IOIL RES_JA_IT RES_JA_K RES_JA_MRES_JA_NFA RES_JA_P RES_JA_PGNP RES_JA_PIM RES_JA_PXM RES_JA_RL RES_JA_RSRES_JA_TAX. RES_JA_TRATE RES_JA_W RES_JA_XM RES_JA_XT RES_JA_VCAP RES_LI_A


- 66 - APPENDIX II

RES_LI_B RES_LI_C RES_LI_COIL RES_LI_ER RES_LI_GDP RES_LI_GNP RES_LI_ICOMRES_LI_IM RES_LI_INVEST RES_LI_IOIL RES_LI_IT RES_LI_K RES_LI M RES_LI_NFARES_LI_P RES_LI_PGNP RES_LI_PIM RES_LI_PXM RES_LI_RL RES_LI_RS~ RES_LI_TAXRES_LI_TRATE RES_LI_W RES_LI_XM RESJ-I_XT RES_LI_VCAP RES_RW_PIM RES_RW_PXMRES_RW_XM RES_SI_A RES SI_B RES_SI_C RES_SI_COIL RES_SI_ER RES_SI_GDP RES SI_GNPRES_SI_ICOM RES_SI_IM RES_SI_INVEST RES_SI_IOIL RES_SI_IT RES SI_K RES_SI_MRES_SI_NFA RES_SI_P RES_SI_PGNP RES_SI_PIM RES_S1_PXM RES_SI_RL RE5_S1_RSRES_SI_TAX RES_SI_TRATE RES_SI_W RES_SI_XM RES_SI_XT RES_SI_YCAP RES_US_ARES_US_B RES_US_C RES_US_COIL RES_US_GDP RES_US_GNP RES_US_ICOM RES_US_IMRES_US_INVEST RES_US_IOIL RES_US_IT RES_US_K RES US_M RES_US_NFA RES_US_PRES_US_PGNP RES_US_PIM RES_US_PXM RES_US_RL RES_US_RS RES_US_TAX RES_US_TRATERES_US_W RES_US_XM RESJJS_XT RES_US VCAP RES_WTRADE RES_WTRAD£RRPOIL - Real price of o i l , (1980=1)""RW_NEER - Nominal effective exchange rateSI_BRATIO - Target ratio of nominal govt debt to GNPSI_CTRATE - Corporate tax rateSI_DELTA - Depreciation rate for capital stockSI_G - Real government spending on goods and services (NA)SI_GEXOG - Other government spending, in real termsSI_MT - Target level of the monetary baseSI_PIBAR - Long run expected inflationSI_PRODOIL - Output of oilSI_TXCRED - Tax creditsSI_XOIL - Exports of oilT - Ti meUS_BRATIO - Target ratio of nominal govt debt to GNPUS_CTRATE - Corporate tax rateUS_DELTA - Depreciation rate for capital stockUS_G - Real government spending on goods and services (NA)US_GEXOG - Other government spending, in real termsUS_MT - Target level of the monetary baseUS_PIBAR - Long run expected i n f l a t i o nUS_PROOOIL - Output of oilUS_RRBAR - baseline level of US_RR used in DC Debt calculationUS_TXCRED - Tax creditsUS_XOIL - Exports of oil

COEFFICIENT:DASS1 DASS2 DBETA DCO DC 1 DC2 DDEBT1 DDEBT2 DN DRHOBAR DW1 DW2 DYCAPOGBETA GCOILO GCOIL1 GCOIL2 GCOIL3 GCOIL4 GCO GC1 GC2 GC3 GE80 GICO GIC1GIC2 GIC3 GIC4 GIC5 GIO Gil GI2 GI3 GI4 GI5 GI6 GKO GK1 GK2 GK3 GK4 GMOGM1 GM2 GM3 GM4 GN GPXMO GPXM1 GPXM2 GP1 GP2 GP3 GP4 GR1 GWT GWI GW2GW3 GW4 GXO GX1 GX2 GX3 HID HI 1 HI2 HQNTO ISR JBETA JCOILO JCOIL1 JCOIL2JCOIL3 JCOIL4 JCO JC1 JC2 JC3 JE80 JICO JIC1 JIC2 JIC3 JIC4 JIC5 J10 JI1JI2 JI3 JI4 JI5 JI6 JKO JK1 JK2 JK3 JK4 JMO JM1 JM2 JM3 JM4 JN JPXMOJPXM1 JPXM2 JP1 JP2 JP3 JP4 JR1 JWT JW1 JW2 JW3 JW4 JXO JX1 JX2 JX3LBETA LC01LO LC01L1 LCOIL2 LCOIL3 LCOIL4 LCD LCI LC2 LC3 LE80 LICO LIC1LIC2 LIC3 LIC4 LIC5 LIO LI 1 LI2 LI3 LI4 LI5 LI6 LKO LK1 LK2 LK3 LK4 LMOLM1 LM2 LM3 LM4 LN LPXMO LPXM1 LPXM2 LP1 LP2 LP3 LP4 LR1 LWT LW1 LW2LW3 LW4 LXO LX1 LX2 LX3 RE80 RPXM1 RPXM2 RQNTO RXCOM1 RXSM1 RXO RX1 RX2RX3 RX4 SBETA SCOILO SCOIL1 SCOIL2 SCOIL3 SCOIL4 SCO SCI SC2 SC3 SE80 SICOSIC1 SIC2 SIC3 SIC4 SIC5 SIO SI 1 SI2 SI3 SI4 515 SI6 SKO SKI SK2 SK3SK4 SMO SMI SM2 SM3 SM4 SN SPXMO SPXM1 SPXM2 SP1 SP2 SP3 SP4 SRI SWTSW1 SW2 SW3 SW4 SXO SX1 SX2 SX3 S 1 1 S12 S13 S14 S15 Sl6 S21 S22 S23S24 S25 S26 S31 S32 S33 S34 S35 S36 S41 S42 S43 S44 S45 S46 S51 552S53 S54 S55 S56 S61 S62 S63 S64 S65 S66 TAU1 TAU2 T1 T2 T3 T4 T5 T6UBETA UCOILO UCOIL1 UCOIL2 UCOIL3 UCOIL4 UCO UC1 UC2 UC3 UICO UIC1 UIC2UIC3 UIC4 UIC5 DID UI1 UI2 UI3 UI4 UI5 UI6 UKO UK 1 UK2 UK3 UK4 UMO UM1UM2 UM3 UM4 UN UPXMO UPXM1 UPXM2 UP1 UP2 UP3 UP4 UR 1 UWT UVM UW2 UW3UW4 UXO UX1 UX2 UX3 V12 V13 V14 V15 V22 V23 V24 V25 V32 V33 V34 V35V42 V43 V44 V45 V52 V53 V54 V55 W 1 1 W12 W13 W14 W15 W16 W21 W22 W23W24 W25 W26 W31 W32 W33 W34 W35 W36 W41 W42 W43 W44 W45 W46 W51 W52W53 W54 W55 W56 W61 W62 W63 W64 W65 W66

of G/GNP

of PGNP/P ratioof RSRof G/GNP

of PGNP/P ratioof RSRof G/GNP

of PGNP/P ratioof RSR

PARAMETER :GGBARGLAMBDABGRHOBARGRRBARJGBARJLAMBDABJRHOBARJRRBARLGBARLLAMBDABLRHOBARLRRBAR

- Normal levelGLAMBDAM

- Normal level- Normal level- Norma 1 1 eve 1JLAMBDAM

- Normal level- Norma 1 1 eve 1- Norma 1 1 eve 1LLAMBDAM

- Norma 1 1 eve 1- Normal level


- 67 - APPENDIX II

SGBAR - Normal level of G/GNPSLAMBDAB SLAMBDAMSRHOBAR - Normal level of PGNP/P ratioSRRBAR - Normal level of RSRUGBAR - Normal l e v e l of G/GNPULAMBDAB ULAMBDAMURHOBAR - Normal level of PGNP/P ratioURRBAR - Normal level of RSR

EQUATIONS

*****************MODEL FOR US

I. Aggregate Demand

Consumption expenditure:1:UC DEL(1 : LOG(US_O) = UCO + UC1 * LOG(US_W(- 1)/US_C(- 1))+UC2»DEL(1 : US_RLR)+UC3»

DEL(1 : LOG(US_VD))+RES_US_C

Consumpt ion of o i l :2:UCOIL DEL(1 : LOG(US_C01L)) = UCOILO+UC01L1»DEL(1 : LOG(US_GDP))+UCOIL2*DEL(1 :

LOG(POIL/US_PGNP))+UCOIL3*LOG(POIL(- 1)/US_PGNP(-1))+ UCOIU4*LOG(US_GDP(-1)/US_COIL(-1))+RES_US_COIL

Change in the c a p i t a l stock:3:UK DEL(1 : LOG(US_K)) = UK 1 *LOG ( US_GDP ( - 1 ) /US_K ( - 1 ) ) +UK 2* DEL ( 1 : LOG ( US_GDP ) ) +

UK3*US_UCSTCAP+UKO+UK4*DUM74+RES_US_K

Real gross investment:4:UINV US_INVEST = DEL(1 : US_K)+US_DELTA*US_K(- 1 )+RES_US_INVEST

Manufactured exports - real:5:UXM LOG(US_XM) = UXO + UX1*LOG(US_FM)+ UX2»US_REER + UX3*US_REER(- 1)+RES_US_XM

Man. exports - real, adjusted for real world trade discrepancy:6:UXA US_XMA = US_XM+T1*WTRADER

Total exports:7:UXT US_XT = US_XMA+US_XOIL+RES_US_XT

Imports of manufactures - real:8:UIM LOG(US_IM) = UI0 + UI 1*LOG(US_A) + UI 2*LOG(US_A(- 1 ) )+UI3*LOG(US_PIMA/US_PGNPNO) +

UI4*T+UI5*LOG(US_IM(-1))+RES__US_IM

Imports of o i l :9:UIOIL US_IOIL =- US_C01 L+US_XOI L-US__PRODOI L + RES_US_1 01 L

Imports of primary commodities (frorn RW only):10:UIC DEL(1 : LOG(US_ICOMJ) = UICO+UIC2*DEL(1 : LOG(PCOM/US_ER/US_PGNP))+UIC1*DEL(

1 : LOG(US_GDP))+UIC3*LOG(PCOM(- 1)/US_ER(-1)/US_PGNP(-1))+ UIC4*LOG(US_GDP(- 1))+UIC5*LOG(US_ICOM(-l))+RES_US_ICOM

Total Imports:11:OIT US_Ii = US_lM-v-US_IOIL*uS_ICOM-*-RES_uS_IT

D e f i n i t i o n of domestic absorption:12:UA US_A = US_C+US_INWEST+US_G+RES_US_A

Real GDP ident i ty:13:UGDP US_GDP = US_A+US_XT-US_IT+RES_US_GDP

D e f i n i t i o n of real GNP:14:UGNP US_GNP = US_GDP + US_R*US_NFA(- 1 )/US_PGNP + RES_US_GNP

Net National Product:15:UNNP US_NNP - US_GDP~US_DELTA*US_K(- 1 )

Capacity Net N a t i o n a l Product:16:UNNPC US_NNPCAP = US_VCAP~US_DELTA*US_K(- 1)

Real Wealth (Financial plus discounted future income):17:UW US W = ULAMBDAM*US M/US P+0.5*(1+SUM(I = -3 TO -1 : US RL(I)/3)/US RL)*


- 68 - APPENDIX II

US_NFA/US_ER/US_P+US_NNPCAP*(1-UGBAR)'URHOBAR*(1/URRBAR+(US_CU*0.01 - 1)/CURRBAR+UW1)+(US_PGNP/US_P/URHOBAR-1)/(URRBAR+UW2)-(US_RSR-URRBAR)/(URRBAR+UW3)-((US_G*US_P+US_GEXOG)/(US_NNP*US_PGNP)-UGBAR)/( 1 -UGBAR)/(URRBAR+UW4)) +RES_US_W

Real disposable income:18:UYD US_VD = US_GDP*US_PGNP/ US_P-US_OELT A*US_K( - I) -US_TfcX./US_P+US_R* (US_B(- \ ) +

US_NFA(-1))/US_P-(1-ULAMBDAB)*DEL(1 : US_B)/US_P

II. Government Sector

Total government expenditures - nominal:19:UGE US_GE = US_P*US_G+US_R*US_B(- 1)+US_GEXOG

Government tax receipts:20:UTAX US_TAX = US_TRATE*(US_PGNP*US_GNP-US_DELTA*US_K(- 1)*US_P+US_R*US_B(- 1)) +

RES_US_TAX

Average tax rate (reaction function):21:UTRATE DEL(1 : US_TRATE) = ( + TAU1 )*DUM*(US_B(- 1 )/US_PGNP(- 1)/US_GNP(- 1)-US_BRATI0) +

TAU2*DUM«DEL( 1 : US_B(- 1 )/US_PGNP(- 1)/US_GNP(- 1)) +RES_US_TRATE

Government balance sheet identity (solves for government debt):22:UB DEL(1 : US_B)+DEL(1 : US_M) = US_R*US_B (- 1 ) + (US_P*US_G-US_TAX-i-US_GEXOG) +

RES_US_B

Def i n i t i o n of nominal government d e f i c i t :23:UGOEF US_GDEF = DEL(1 : US_B+US_M)

III. Money and Interest Rates

Money demand function (M):24:UM LOG(US_M/US_P) = UMO+UM1 *LOG(US_GNP) +UM2*US_RS+UM3*US_RS(- 1)+UM4»LOG(US_M(- 1

)/US_P(-1))+RES_US_M

Money supply reaction function i25:URS DEL(1 : US_RS) = UR1 *(((1-UM4)*LOG(US_MT/US_P)-UM1*LOG(US_GNP)-UMO-RES_US_M)

/(UM2+UM3)-US_RS(-1))+RES_US_RS

Term structure of interest rates (solves for long term rate):26:URL US_RS/100 = US_RL/100-(US_RL(1)/US_RL-1)+RES_US_RL

Average interest rate - lagged, annual rate:27:UR US_R = 0.5*US_RS(- 1)/100 + 0.5*SUM(I = -3 TO -1 : US_RL(I)/100)/3

Real long term interest rate (ex ante):28:URLR US_RLR = (1+US_RL/100)/(1+0. 1*US_PI(1 ) + 0.9*US_PIBAR)- 1

Real ex ante short rate:29:URSR US_RSR = ( 1+US_RS/100)/( 1+US_PI( 1))- 1

Average real interest rate, for c a l c u l a t i n g real Debt interest:30:URR US_RR = 0.8*US_RSR(- 1)+0.2*SUM(I = -3 TO -1 : US_RLR(I))/3

Real user cost of capital:31:UUCST US_UCSTCAP = (US_DELTA+(1-US_CTRATE)*US_RL/100-0.1*US_PI(1)-0.9*US_PIBAR)*(1

-US_TXCRED-US_CTRATE*0.2/(US_RL/100+0.2))/(1-US_CTRATE)

IV. Prices and Supply

Price level (GNP deflator):32:UPGNP DEL(1 : LOG(US_PGNPNO)) = UP 1 * LOG(US_CU*0.01)+UP2*DEL(1 : LOG(US_CU))-(1-UP3

)*UP2*DEL(1 : LOG(US_CU(- 1))) + (1-UP3)*DEL(1 : LOG(US_PGNPNO(- 1)))+UP3*(UP4*US_PI(1)+(1-UP4)*US_PI)+RES_US_PGNP

Non-oil GNP deflator:33:UPNO US_PGNPNO = (US_GDP*US_PGNP-US_PRODOIL*POIL)/(US_GDP-US_PRODOIL)

Nominal GNP identity (solves for absorption deflator):34:UP US_PGNP*US_GNP = US_P*US_A + US_XT*US_PXT-US_IT*US_PIT + US_R*US_NFA(- 1 ) +

RES_US_P

Inflation rate (absorption deflator) - annual rate:35:UPI US_PI = US_P/US_P(-1)-l

Prices in foreign markets:36:UPFM LOG(US PFM) = W12*LOG(JA PXM*JA ER/JE80)+W13*LOG(GR PXM*GR ER/GE80)+W14*LOG(


- 69 - APPENDIX II

LI_PXM*LI_ER/LE8a)+vn5*LOG(SI_PXM*SI_ER/SE80)+W16*LOG(RW_PXM*RW_ER/RE80)

Non-fuel export prices:37:UPXM DEL(1 : LOG(U5_PXM)) = UPXMO + UPXM1 *DEL(1 : LOG(US_PGNPNO)) + (1-UPXM1)*OEL( 1

: LOG(US_PFM) )+ UPXM2*LOG(US_PGNPNO(- 1 )/US_PXM(-1 ) )-i-RES_US_PXM

Total exports price:38:UPXT US_PXT = (US_XMA*US_PXM+POIL*US_XOIL)/US_XT

Manufactured import prices:39:UPIM US_PIM = S11*US_PXM+S2)*JA_PXM*JA_ER/JE80+S3I*GR_PXM*GR_ER/GE80+S41*LI_PXM*

LI_ER/LE80+S51*SI_PXM*SI_ER/SE80+S61*RW_PXM*RW_ER/RE80+RES_US_PIM

Import prices-adjusted for (nominal) world trade discrepancy:40:IIPIMA US_PIMA = US_PIM + T1*WTRADE/US_I M

Total imports price:41:UPIT US_PIT = (US_IM*US_PIMA+US_IOIL*POIL+US_ICOM*PCOM)/US_IT

Production function (capacity output):42:UYCAP LOG(US_VCAP) = LOG( 1+UN)*T*(1-UBETA)+LOG(US_K(- 1))*UBETA+RES_US_YCAP

Capacity u t i l i z a t i o n :43:UCU US_CU = 100*US_GDP/US_YCAP

V. International Accounts

Balance of payments (claims on foreigners), current $:44:UNFA DEL(1 : US_NFA) = US_XT*US_PXT-(US_IM*US_PIMA+US_I0IL*POIL+US_ICOM*PCOM)+

US_R*US_NFA(-1)+RES_US_NFA

Current account - current d o l l a r :45:IICAB US_CURBAL = DEL(1 : US_NFA)

Normalized value of the US$ exchange rate:46:UER US_ER = 1

Competitiveness of Man. exports:47:UREER US_REER = (-W11)*LOG(US_PXM)+(-W12)*LOG(JA_PXM*JA_ER/JE80)+(-W13)*LOG(GR_PXM

*GR_ER/GE80)+(-W14)*LOG(LI_PXM*LI_ER/LE80)+(-Wl5)*LOG(SI_PXM*SI_ER/SE80)+(-W16)*LOG(RW_PXM*RW_ER/RE80)

Nom i n a l effective exchange rate:48:UMERM US_MERM = EXP((-V12)»LOG(JA_ER/JE80)+(-V13)*LOG(GR_ER/GE80)+(-V14)*LOG(LI_ER

/LE80)+(-V15)*LOG(Sl_ER/SE80))

Foreign export markets for manufact. (using fixed shares):49:UFM US_FM = S1 1*US_I M+S12*(JA_IM*JE80) + S13 *(GR_IM*GE80) + S14*(LI_IM*LE80) + S15*(

SI_IM*5E80)+S16*(RW_IM*RE80)

*****************MODEL FOR JA*****************

1 . Aggregate Demand

Consumption expenditure:50:JC DEL(1 : LOG(JA_O) = JCQtJC1*LOG(JA_W(- 1 )/JA_C(- 1 )) + JC2*DEL( 1 : JA_RLR)+JC3*

DEL(1 : LOG(JA_YD))+RES_JA_C

Consumpt ion of o i l :51:JCOIL DEL(1 : LOG(JA_C01L)) = JCOILO+JCOIL1*DEL(1 : LOG(JA_GDP))+JC01L2*DEL(1 :

LOG(POIL/JA_ER*JE80/JA_PGNP)) + JCOIL3*LOG(POIL(- 1)/JA_ER(-1)*JE80/JA_PGNP(- 1 ))+JCOIL4*LOG(JA_GDP(-l)/JA_COIL(-I))+RES_JA_COIL

Change in the c a p i t a l stock:52:JK DEL(1 : LOG(JA_K)) = JK1 * LOG(JA_GDP(- 1 )/JA_K(- 1 )) + JK2*DEL( 1 : LOG(JA_GDP)) +

JK3* JA_UC5TCAP-tJKO-» J K4*DUM74 + RES_J A_K

Real gross investment:53:JINV JA_INVEST = DEL(1 : JA_K)+JA_DELTA*JA_K(- 1 )+RES_JA_INVEST

Manufactured exports - real :54:JXM LOG(JA_XM) = JXO + JX 1 * LOG ( J A_FM ) + J X2 * J A_R EER +J X3 * J A_R E ER ( - 1 ) i-R E S_J A_XM

Man. exports - real, adjusted for real w o r l d trade discrepancy:


- 70 - APPENDIX II

55:JXA JA_XMA = JA_XM+T2*WTRADER/JE80

Tota1 exports:56:JXT JA_XT = JA_XMA+JA_XOIL+RES_JA_XT

Imports of manufactures - real:57:JIM LOG(JA_IM) = JI 0 + JI 1*LOG(JA_A) + JI2*LOG(JA_A(- 1))+JI 3*LOG(JA_PIMA/JA_PGNPNO) +

JI4*T+JI5*LOG(JA_IM(-1))+RES_JA_IM

Imports of o i l :58:JIOIL JA_IOIL = JA_COIL+JA_XOIL-JA_PRODOIL+RES_JA_IOIL

Imports of primary commodities (from RW only):59:JIC DEL(1 : LOG(JA_ICOM) ) = JICO + JIC2*DEL(1 : LOG(PCOM/JA_ER/JA_PGNP))+JIC1 * DEL(

1 : LOG(JA_GDP)) + JIC3*LOG(PCOM(- 1)/JA_ER(-1)/JA_PGNP(-l))+JIC4»LOG(JA_GDP(- 1))+JIC5*LOG(JA_ICOM(-1))+RES_JA_ICOM

Tota' Imports:60:JIT JA_IT = JA_IM-t-JA_10IL- + JA_ICOM + RES_JA_IT

Definition of domestic absorption:61:JA JA_A = JA_OJA_INVEST + JA_G + RES_JA_A

Real GDP identity:62:JGDP JA_GDP = JA_A+JA_XT-JA_IT+RES_JA_GDP

Definition of real GNP:63:JGNP JA_GNP = JA_GOP-HIS_R*JA_NFA(- 1 )/JA_ER/JA_PGNP+RES_JA_GNP

Net National Product:64:JNNP JA_NNP = JA_GDP-JA_DELTA*JA_K(- 1)

Capacity Net National Product:65:JNNPC JA_NNPCAP = JA_VCAP-JA_DELTA*JA_K(- 1 )

Real Wealth (Financial plus discounted future income):66:JW JA_W = JLAMBDAM*JA_M/JA_P+0.5*(1+SUM(I = -3 TO -1 : US_RL(I)/3)/US_RL)*

JA_NFA/JA_ER/JA_P+JA_NNPCAP*(1-JGBAR)*JRHOBAR*(1/JRRBAR+(JA_CU*0.01-1)/(JRRBAR+JW1)+(JA_PGNP/JA_P/JRHOBAR-1)/(JRRBAR+JW2)-(JA_RSR-JRRBAR)/(JRRBAR+JW3) -( (JA_G*JA_P-»-JA_GEXOG) / ( J A_NNP* JA_PGNP) -JGBAR ) /(l-JGBAR)/(JRRBAR-i-JW4)) +RES_JA_W

Real disposable income:67:JVD JA_YD = JA_GDP*JA_PGNP/JA_P-JA_DELTA*JA_K(- 1)-JA_TAX/JA_P +JA_R*JA_B(- 1 )/JA_P

+US_R*JA_NFA(-1)/JA_ER/JA_P-(1-JLAMBDAB)*DEL(1 : JA_B)/JA_P


Total government expenditures - nominal:68:JGE JA_GE = JA_P*JA_G+JA_R*JA_B ( - 1 )+JA_GEXOG

Government tax receipts:69:JTAX JA_TAX = JA_TRATE*(JA_PGNP*JA_GNP-JA_DELTA*JA_K(- 1 )*JA_P +JA_R*JA_B(- 1 ) ) +

RES_JA_TAX

Average tax rate (reaction function):70:JTRATE DEL(1 : JA_TRATE) = TAU1*DUM*(JA_B(- 1)/JA_PGNP(- 1 )/JA_GNP(- 1 )-JA_BRAT I 0) +

TAU2*DUM*DEL( 1 : JA_B(- 1 )/JA_PGNP(- 1 )/JA_GNP(- 1))+RES_JA_TRATE

Government balance sheet identity (solves for government debt):71:JB DEL(1 : JA_B)+DEL(1 : JA_M) = JA_R*JA_B(- 1) + (JA_P*JA_G-JA_TAX + JA_GEXOG) +

RES_JA_B

Definition of nominal government d e f i c i t :72:JGDEF JA_GDEF = DEL(1 : JA B+JA_M)

I I I . Money and Interest Rates

Money demand function (M):73:JM LOG( JA_M/JA_P) = JMO + JM 1 "LOG ( J A_GNP ) •*• JM2* J A_R S + JM3 * J A_RS ( - 1 ) +• JM4* LOG ( J A_M( - 1

)/JA_P(-1))+RES_JA_M

Money supply reaction function :74:JRS DEL( 1 : JA_RS) = JR 1 *( ( ( 1 -JM4)* LOG(JA_MT/JA_P)-JM1 * LOGfJA_GNP)-JMO-RES_JA_M)

/(JM2tJM3)-JA_RS(-1))+RES_JA_RS

Term structure of interest rates (solves for long term rate):


- 71 - APPENDIX II

75:JRL JA_RS/100 = JA_RL/ 100 -(JA_RL( 1 )/JA_RL-1 )+RES_JA_RL

Average interest rate - lagged, annual rate:76:JR JA_R = 0.5 *JA_RS(- 1 )/100 + 0.5*SUM( I = -3 TO -1 : JA_RL(I )/100)/3

Real long term interest rate (ex ante):77:JRLR JA_RLR = (1+JA_RL/100)/( 1+0. 1 *JA_P1( 1 )+0.9 *JA_PI BAR)- 1

Real ex ante short rate:78:JRSR JA_RSR = (1+JA_RS/100)/( 1 + JA_pI ( 1 ) ) - 1

Real user cost of capital:79:JUCST JA_UCSTCAP = (JA_DELTA+( 1 -JA_CTRATE)*JA_RL/1Q0~0. 1 *JA_PI( 1 )-0.9*JA_PIBAR)*( 1

-JA_TXCRED-JA_CTRATE*0.2/(JA_RL/100+0.2))/(1-JA_CTRATE)


Price level (GNP deflator):80:JPGNP DEL(1 : LOG(JA_PGNPNO) ) = JP1 * LOG(JA_CU*0.01 )+JP2*DEL( 1 : LOG(JA_CU))-( 1 -JP3

)*JP2*DEL(1 : LOG(JA_CUl-1 ) )) + ( 1-JP3)*DEL( 1 : LOG(JA_PGNPNO(- 1 ) ) )+JP3*(JP4*JA_PI(1) + (1-JP4)*JA_PI)+RES_JA_PGNP

Non-oil GNP deflator:B1:JPNO JA_PGNPNO = (JA_GDP*JA_PGNP-JA_PRODOIL*POIL/JA_ER*JE80)/(JA_GDP-JA_PRODOIL)

Nominal GNP i d e n t i t y (solves for absorption deflator):82:JP JA_PGNP»JA_GNP = JA_P*JA_A +JA_XT*JA_PXT-JA_lT*JA_PIT + US_R*JA_NFA(- 1)/JA_ER +

RE5_JA_P

Inflation rate (absorption deflator) - annual rate:83:JPI JA_PI = JA_P/JA_P(- 1)-1

Prices in foreign markets:84:JPFM LOG(JA_PFM) = W21*LOG(US_PXM)+ W22»LOG(JA_ER/JE80)+ W23*LOG(GR_PXM*GR_ER/GE80)

+W24*LOG(LI_PXM*LI_ER/LE80)+W25*LOG(SI_PXM*SI_ER/SE80)+W26»LOG(RW_PXM*RW_ER/RE80)

Non-fuel export prices:85:JPXM DEL(1 : LOG(JA_PXM)j = JPXMO + JPXM1*DEL( 1 : LOG(JA_PGNPNO)) + ( 1 -JPXM1 )*DEL( 1

: LOG(JA_PFM)) +• JPXM2*LOG(JA^PGNPNO(- 1 )/JA_PXM(-1))+RES_JA_PXM

Total exports price:86:JPXT JA_PXT = (JA_XMA*JA_PXM+POIL/JA_ER*JE80*JA_XOIL)/JA_XT

Manufactured import prices:87:JPIM JA_PIM = (S12*US_PXM+S22*(JA^PXM*JA_ER/JE80)+S32*(GR_PXM*GR_ER/GE80)+S42*(

LI_PXM*LI_ER/LE80)+S52*(SI_PXM*SI_ER/SE80)+S62*(RW_PXM*RW_ER/REBO) )/JA_ER*JEBO+RES_JA_PIM

Import prices-adjusted for (nominal) w o r l d trade discrepancy:88:JPIMA JA_PIMA = JA_P1M+T2*WTRADE/JA^ER/JA_IM

Total imports price:89:JPIT JA_PIT = (JA_IM*JA_PIMA+JA_l01L*PO1L/JA_ER*JE80+JA_ICOM*PCOM/JA_ER*JE80)/

JA_IT

Production function (capacity output):90:JVCAP LOG(JA_VCAP) = LOG( 1 »JN ) *T*( 1 -JBETA)+LOG(JA_K(- 1) )*JBETA^RES_JA_yCAP

Capacity u t i l i z a t i o n :91:JCU JA_CU = 100*JA_GDP/JA_VCAP


Balance of payments ( c l a i m s on foreigners), current t:92:JNFA DEL(1 : JA_NFA) = (JA_XT*JA_PXT-(JA_IM*JA_P1MA + JA_I0 IL*POIL/JA_ER*JE80 +

JA_ICOM*PCOM/JA_ER*JE80))*JA_ER + US_R*JA_NFA(- 1 )+RES_JA_NFA

Current account - local currency:93:JCABL JA^CURBALL = US_R*JA_NFA(- 1 ) /JA_ER+ (JA_XT*JA_PXT- (JA_IM*JA_PIMA +JA_I01L*POIL

/JA_ER*JE80+JA_1COM*PCOM/JA_ER*JE80J)

Current account - current do 1 l a r :94:JCAB JA__CURBAL = DEL(1 : JA_NFA)

Open interest party c o n d i t i o n (solves for exchange r a t e ) - .95:JER l+US RS/100 = (1+JA RS/100)*(JA ER(1)/JA E R j t R E S JA ER


- 72 - APPENDIX II

Competitiveness of Man. exports:96:JREER JA_REER = (-W21)*LOG(US_PXM)+(-W22)*LOG(JA_PXM*JA_ER/JEBO)+(-W23)*LOG(GR_PXM

*GR_ER/GE80)+(-W24)*LOG(LI_PXM*LI_ER/LE80)+(-W25)*LOG(SI_PXM*SI_ER/SE80)+(-W26)*LOG(RW_PXM*RW_ER/RE80)

Nominal effective exchange rate:97:JMERM JA_MERM = EXP((-V22)*LOG(JA_ER/JE80) + (-V23)* LOG(GR_ER/GE80) + (-V24j* LOG(LI_ER

/LE80)+(-V25)*LOG(SI_ER/SE80))

Foreign export markets for manufact. (using fixed shares):98:JFM JA_FM = (S21*US_IM+S22*(JA_IM*JE80)+S23*(GR_IM*GE80)+S24«(LI_IM*LE80)+S25*(

SI_IM*SE80)+S26*(RW_IM*RESO))/JE80

*****************MODEL FOR GR*****************

I. Aggregate Demand

Consumption expenditure:99:GC DEL(1 : LOG(GR_C)') = GCO + GC1 *LOG(GR_W(- 1 )/GR_C(- 1 ))+GC2*DEL(1 : JA_RLR)+GC3*

DEL(1 : LOG(GR_VD))+RES_GR_C

Consumption of o i l :100:GCOIL DEL(1 : LOG(GR_COIL)) = GCOILO+GCOIL1*DEL(1 : LOG(GR_GDP))+GCOIL2*DEL(1 :

LOG(POIL/GR_ER*GE80/GR_PGNP) )+GCOIL3*LOG{POIL(- 1 )/GR_ER(-1 )*GE80/GR_PGNPC- 1 ))+GCOIL4*LOG(GR_GDP(-1)/GR_COIL(-1))+RES_GR_COIL

Change in the capital stock:101 :GK DEL(1 : LOG(GR_K)) = GK1 * LOG(GR_GDP(- 1 )/GR_K(- 1 ))+GK2*DEL( 1 : LOG(GR_GDP)) +

GK3*GR_LICSTCAP + GWO + GK4»OUM74 + RES_GR_K

Real gross investment:102:GINV GR_INVEST = DEL(1 : GR_K)+GR_DELTA*GR_K(- 1 )+RES_GR_INVEST

Manufactured exports - real:103:GXM LOG(GR_XM) = GXO + GX1«LOG(GR_FM)+GX2*GR_REER + GX3*GR_REER(- 1 )+RES_GR_XM

Man. exports - real, adjusted for real w o r l d trade discrepancy:104:GXA GR_XMA = GR_XM+T3*WTRADER/GE80

Tot a l exports:105:GXT GR_XT = GR_XMA+GR_XOIL^RES_GR_XT

Imports of manufactures - real:106:GIM LOGfGR_IM) = Gl0 + GI 1*LOG(GR_A)+ GI2*LOG(GR_A(- 1 ))+GI 3 * LOG(GR_PIMA/GR_PGNPNO)*

GI4*T+GIS*LOG(GR_TM(-1))+RES_GR_IM

Impor t s of o i l :107:G10IL GR_I01L = GR_C01L+GR_XOIL-GR_PRODOIL+RES_GR_IOIL

Imports of primary commodities (from RW only):108:G1C DEL(1 : LOG(GR_1COM)) = GICCH-GIC2*DEL(1 : LOG(PCOM/GR_ER/GR_PGNP))+GIC1*DEL(

1 : LOG(GR_GDP) )+GIC3* LOG(PCOM(- 1)/GR_ER(- 1)/GR_PGNP(-1))+GIC4*LOG(GR_GDP(- 1))+GIC5*LOG(GR_lCOM(-1))+RES_GR_ICOM

T o t a l Impor ts:109:GIT GR_IT = GR_IM+GR_IOI L-fGR_I COM+RES_GR_I T

D e f i n i t i o n of domestic absorption:110:GA GR_A = GR_C + GR_1NVEST + GR_G-»RES__GR_A

Rea1 GDP ident i ty:111:GGDP GR_GDP = GR_A+GR_XT-GR_1T+RES_GR_GDP

D e f i n i t i o n of real GNP:1!2:GGNP GR_GNP = GR_GDP+US_R*GR_NFA( - 1 )/GR_ER/GR_PGNP + RES_GR_GNP

Net N a t i o n a l Product:113:GNNP GR_NNP = GR_GDP-GR_DELTA*GR_K(- 1 )

Capacity Net N a t i o n a l Product:114:GNNPC GR_NNPCAP = GR_YCAP-GR_DELTA*GR_K ( - 1 )

Real W e a l t h (Financial plus discounted future income):


- 73 - APPENDIX II

115:GW GR_W = GLAMBDAM*GR_M/GR_P-KD .5*( 1+SUM(I = -3 TO -1 : US_RL(I)/3)/US_RL)*GR_NFA/GR_ER/GR_P+GR_NNPCAP*( 1-GGBAR)*GRHOBAR*(1/GRRBAR+(GR_CU*0.01 - 1)/(GRRBAR+GW1)+(GR_PGNP/GR_P/GRHOBAR-1)/(GRRBAR+GW2)-(GR_RSR-GRRBAR)/(GRRBAR+GW3)-((GR_G*GR_P+GR_GEXOG)/(GR_NNP*GR_PGNP)-GGBAR)/(1-GGBAR)/(GRRBAR+GW4) ) +RES_GR_W

Real disposable income:116:GVD GR_YD = GR_GDP*GR_PGNP/GR_P-GR_DELTA»GR_K(- 1)-GR_TAX/GR_P + GR_R*GR_B(- 1 )/GR_P

+US_R*GR_NFA(-1)/GR_ER/GR_P-(1-GLAMBDAB}*DELt1 : GR_B)/GR_P

I I . Government Sector

Total government expenditures - nominal:117.-GGE GR_GE = GR_P*GR_G+GR_R *GR_B ( - 1 ) +GR_GEXOG

Government tax receipts:118:GTAX GR_TAX = GR_TRATE*(GR_PGNP*GR_GNP-GR_DELTA*GR_K(- 1 )*GR_P + GR_R*GR_B(-1 ) ) +

RES_GR_TAX

Average tax rate (reaction function):119:GTRATE DEL(1 : GR_TRATE) = TAU1*DUM*(GR_B(- 1 )/GR_PGNP(- 1)/GR_GNP(- 1 )-GR_BRAT10)+

TAU2*DUM*DEL(1 : GR_B(- 1 )/GR_PGNP(- 1 )/GR_GNP(- 1 ))+RES_GR_TRATE

Government balance sheet i d e n t i t y (solves for government debt):120:GB DEL(1 : GR_B)+DEL(1 : GR_M) = GR_R*GR_B(- 1) +• (GR_P*GR_G-GR_TAX+GR_GEXOG) +

RES_GR_B

D e f i n i t i o n of nominal government d e f i c i t :121:GGDEF GR_GDEF = DEL(1 : GR_B+GR_M)


Money demand function (M):122:GM LOG(GR_M/GR_P) = GMO + GM1 * LOG(GR_GNP}+ GM2*GR_RS + GM3*GR_RS(- 1 )+GM4*LOG(GR_M(- 1

)/GR_P(-1))+RES_GR_M

Money supply reaction function :123:GRS DEL(1 : GR_RS) = GR1 *((( 1-GM4)* LOG(GR_MT/GR_P)-GM1*LOG(GR_GNP)-GMO-RES_GR_M)

/(GM2+GM3)-GR_RS(-1))->-RES_GR_RS

Term structure of interest rates (solves for long term rate):124:GRL GR_RS/100 = GR_RL/100-(GR_RL(1)/GR_RL-1)+RES_GR_RL

Average interest rate - lagged, annual rate:125:GR GR_R = 0.5*GR_RS(- 1 )/100 + 0.5*SUM(1 = -3 TO -1 : GR_RL(I)/100)/3

Real long term interest rate (ex ante):126:GRLR GR_RLR = ( 1*GR_RL/100)/( 1+0. 1*GR_PI( 1 )+0.9*GR_PIBAR)- 1

Real ex ante short rate:127:GRSR GR_RSR = (1+GR_RS/100)/(1+GR_PI( 1 })- 1

Real user cost of c a p i t a l :128:GUCST GRJJCSTCAP = (GR_DELTA+(1-GR_CTRATE)*GR_RL/100-0. 1*GR_PI( 1 )-0.9*GR_PIBAR)«( 1

-GR_TXCRED-GR_CTRATE»0.2/(GR_RL/100+0.2) )/ (1-GR_CTRATE)


Price level (GNP deflator):129:GPGNP OEL{1 : LOG(GR_PGNPNO)) = GP1 * LOG(GR_CU*0.01 )+GP2*DEL( 1 : LOG(GR_CU))-( 1-GP3

)*GP2*DEL(1 : LOG(GR_CU(- 1 ) ) ) + ( 1-GP3)*DEL( 1 : LOG(GR_PGNPNO(-1)))+GP3*(GP4»GR_PI(!)+(!-GP4)*GR_PI)+RES_GR_PGNP

Non-oil GNP deflator:130:GPNO GR_PGNPNO = (GR_GDP*GR_PGNP-GR_PRODOIL*POIL/GR_ER*GE80)/(GR_GDP-GR_PRODOIL)

Nominal GNP identity (solves for absorption deflator):131 :GP GR_PGNP*GR_GNP = GR_P*GR_A+GR_XT*GR_PXT-GR_IT*GR_PIT + US_R»GR_NFA(- 1)XGR_ER +

RES_GR_P

I n f l a t i o n rate (absorption deflator) - annual rate:132:GPI GR_PI = GR_P/GR_P(-1)-l

Prices in foreign markets:133:GPFM LOG(GR_PFM) = W31 *LOG(US_PXM)+W32*LOG(JA_PXM*JA_ER/JE80)+W33*LOG(GR_ER/GE80)

+W34*LOG(LI_PXM*LI_ER/LE80)+W35*LOG(SI_PXM*SI_ER/SE80)+Vg36*LOG(RW_PXM*RW_ER/RE80)


- 74 - APPENDIX II

Non-fuel export prices:134:GPXM DEL(1 : LOG(GR_PXM)) = GPXMO+GPXM1*DEL(1 : LOG(GR_PGNPNO) ) + ( 1-GPXM1)*DEL( 1

: LOG(GR_PFM))+GPXM2*LOG(GR_PGNPNO(- 1)/GR_PXM(-1))+RES_GR_PXM

Total exports price:135:GPXT GR_PXT = (GR_XMA*GR_PXM+P01L/GR_ER*GE80*GR_XOIL)/GR_XT

Manufactured import prices:136:GPINI GR_PIM = (S13*US_PXM+S23*(JA_PXM*JA_ER/JE80)+S33*(GR_PXM*GR_ER/GE80)+S43*(

LI_PXM«LI_ER/LE60)+S53*(SI_PXM*SI_ER/SE80)+S63*(RW_PXM*RW_ER/REBO))/GR_ER*GE80+RES_GR_PIM

Import prices-adjusted for (nominal) world trade discrepancy:137:GPIMA GR_PIMA = GR_PIM+T3*WTRADE/GR_ER/GR_IM

Total imports price:138:GPIT GR_PIT = (GR_IM«GR_PIMA + GR_IOIL»POIL/GR_ER*GE80 + GR_I COM*PCOM/GR_ER*GE80)/

GR_IT

Production function (capacity output):139:GVCAP LOG(GR_VCAP) = LOG(1+GN)*T*C1-GBETA)+ LOG(GR_K(- 1 ))*GBETA + RES_GR_YCAP

Capacity utilization:140:GCU GR_CU = 100*GR_GDP/GR_YCAP


Balance of payments (claims on foreigners), current $:141:GNFA DEL(1 : GR_NFA) = (GR_XT*GR_PXT-(GR_1M*GR_PIMA+GR_I0IL*POIL/GR_ER*GE80+

GR_ICOM*PCOM/GR_ER*GE80))*GR_ER+US_R*GR_NFA(-1)-t-RES_GR_NFA

Current account - local currency:142:GCABL GR_CURBALL = US_R*GR_NFA(- 1 )/GR_ER+(GR_XT*GR_PXT-(GR_IM*GR_PIMA + GR_I0 IL*POIL

/GR_ER*GE80+GR_ICOM*PCOM/GR_ER*GE80))

Current account - current d o l l a r :143:GCAB GR_CURBAL = DEL(1 : GR_NFA)

Open interest party condition (solves for exchange rate):144:GER 1+US_RS/100 = (1+GR_RS/100)*(GR_ER(1)/GR_ER}+RES_GR_ER

Competitiveness of Man. exports:145:GREER GR_REER = (-W31)*LOG(US_PXM) + (-W32)*LOG(JA_PXM*JA_ER/JE80) + (-W33)* LOG(GR_PXM

*GR_ER/GE80)+(-W34)*LOG(LI_PXM*LI_ER/LE80)+(-W35)*LOG(SI_PXM*SI_ER/SE80)+(-W36)*LOG(RW_PXM»RW_ER/RE80)

Nominal effective exchange rate:146:GMERM GR_MERM = EXP((-V32)*LOG(JA_ER/JE80) + (-V33)* LOG(GR_ER/GE80) + (-V34)* LOG(LI_ER


Foreign export markets for manufact. (using fi*ed shares):147:GFM GR_FM = (S3 1 *US_IM+S32*(JA_IM*JEBO)* 533*(GR_IM*GE80) +• S34*(LI_IM*LE80) + S35*(

SI IM«SE80)+S36*(RW IM«RE80))/GE80

*****************MODEL FOR LI*****************

I. Aggregate Demand

Consumption expenditure:148:LC DEL(1 : LOG(LI_C)) = LCO + LC1 * LOG(LI_W(- 1 )/LI_C(- 1) )+ LC2*DEL( 1 : L1_RLR) + LC3*

DEL(1 : LOG(LI_VD))+RES_LI_C

Consumpt ion of o i l :149:LCOIL DEL(1 : LOG(LI_COIL)) = LCOILOfLCOIL1*DEL(1 : LOG(LI_GDP))+LCOIL2*DEL(1 :

LOG(POIL/LI_ER*LE80/LI_PGNP))+LCOIL3*LOG(POIL(-l )/LI_ER(-1 )*LEBO/LI_PGNP(- 1 ))+LCOIL4*LOG(LI_GDP(-l)/LI_COIL(-1))+RES_LI_COIL

Change in the capital stock:150:LK DEL(1 : LOG(LI_K)) = LK1*LOG(LI_GDP(- 1 )/LI_K(- 1 ) )+ LK2*DEL( I : LOG(LI_GDP) ) +

LK3*LI_UCSTCAP+LKO+LK4*DUM74+RES_LI_K

Real gross investment:151:LINV LI INVEST = DEL(1 : LI K) + L1 DELTA*L1_K(- 1 ) + RES_LI_INVEST


- 75 - APPENDIX II

Manufactured exports - real:152:LXM LOG(LI_XM) = LXO + LX1»LOG(LI_FM) + LX2*LI_REER+LX3»L1_REER(- 1)+RES_LI_XM

Man. exports - real, adjusted for real world trade discrepancy:153:LXA LI_XMA = LI_XM+T4*WTRADER/LE80

Total exports:154:LXT LI_XT = LI_XMA+LI_XOIL+RES_LI_XT

Imports of manufactures - real:155:LIM LOG(LI_IM) = LIO+LI 1 *LOG(LI_A)-t-LI 2*LOG(LI_A ( - 1 ) )+LI3*LOG( LI_PIMA/LI_PGNPNO)+

LI4*T+LI5*LOG(LI_IM(-1))+RES_LI_IM

Imports of o i l :156:LIOIL LI_IOIL = LI_COIL+LI_XOIL-LI_PRODOIL+RES_LI_IOI L

Imports of primary commodities (from RW only):157:LIC DEL(1 : LOG(LI_ICOM)) = LICO+LIC2*DEL(1 : LOG(PCOM/LI_ER/LI_PGNP))+LIC1*DEL(

1 : LOG(LI_GDP))+LIC3*LOG(PCOM(-1)/LI_ER(-l)/LI_PGNP(-1)) + LIC4*LOG(LI_GDP(- 1))i-LIC5*LOG(LI_ICOM(-l))+RES_LI_ICOM

Tota1 Imports:I58:LIT LI_IT = LI_IM+LI_IOIL+LI_ICOM+RES_LI_1T

Definition of domestic absorption:159:LA LI_A = LI_C+LI_INVEST+LI_G+RES_LI_A

Real GDP identity:160:LGDP LI_GDP = LI_A+LI_XT-LI_IT+RES_LI_GDP

Definition of real GNP:161:LGNP LI_GNP = LI_GDP+US_R*LI_NFA(- 1)/LI_ER/LI_PGNP+RES_LI_GNP

Net National Product:162:LNNP LI_NNP = LI_GDP-LI_DELTA*LI_K ( - 1 )

Capacity Net National Product:163:LNNPC LI_NNPCAP = LI_VCAP-LI_DELTA*LI_K(- 1)

Real Wealth (Financial plus discounted future income):164:LW LI_W = LLAMBDAM*LI_M/LI_P+0.5*(1+SUM(I = -3 TO -1 : US_RL(I)/3)/US_RL)*

LI_NFA/LI_ER/LI_P+LI_NNPCAP*(1-LGBAR)*LRHOBAR*(1/LRRBAR+(LI_CU*0.01 - 1)/(LRRBAR+LW1)+(LI_PGNP/LI_P/LRHOBAR-1)/(LRRBAR+LW2)-(LI_RSR-LRRBAR)/(LRRBAR+LW3)-((LI_G*LI_P+LI_GEXOG)/(LI_NNP*LI_PGNP)-LGBAR)/(1-LGBAR)/(LRRBAR+LW4))+RES_LI_W

Real disposable income:165:LVD LI_VD = LI_GDP*LI_PGNP/LI_P-LI_DELTA*LI _K ( - 1 )-LI_TAX/LI_P+LI_R*LI_B(- 1)/LI_P

+US_R*LI_NFA(-1)/LI_ER/LI_P-(1-LLAMBDAB)*DEL(1 : LI_B)/H_P


Total government expenditures - nominal:166:LGE LI_GE = LI_P*H_G+LI_R*LI_B (- 1 ) +LI_GEXOG

Government tax receipts:167:LTAX LI_TAX = LI_TRATE*(LI_PGNP*H_GNP-LI_DELTA*LI_K ( - 1 )*LI_P+LI_R*LI_B(- 1)) +

RES_LI_TAX

Average tax rate (reaction function):168:LTRATE DEL(1 : LI_TRATE) = TAU1*DUM*(LI_B(- 1 )/LI_PGNP(- 1 )/LI_GNP(- 1 )-LI_BRATI0) +

TAU2*DUM*DEL(1 : LI_B(- 1)/LI_J>GNP(- 1)/LI_GNP(- 1))+RES_LI_TRATE

Government balance sheet identity (solves for government debt):169-.LB DEL(1 : LI_B)+DEL(1 : LI_M) = L I_R*LI_B ( - 1 ) + ( L I_P» L I_G-LI_TAX+LI_GEXOG) +

RES_LI_B

Definition of nominal government deficit:170:LGDEF LI_GDEF = DEL(1 : LI_B+LI_M)


Money demand function (M):171-.LM LOG(L1_M/LI_P) = LMO + LM 1 *LOG ( L I_GNP ) + LM2* LI _RS + LM3* L I_R S ( - 1 ) + LM4* LOG ( L I_M ( - 1

)/LI P(-1))+RES LI M


- 76 - APPENDIX II

Money supply reaction function :172:LRS DEL(1 : LI_RS) = LR1 *(((1-LM4)*LOG(LI_MT/LI_P)-LM1 *LOG(LI_GNP)-LMO-RES_LI_M)

/(LM2+LM3)-LI_RS(-1))+RES_LI_RS

Term structure of interest rates (solves for long term rate):173:LRL LI_RS/100 = LI_RI_/100-(LI_RL(1)/LI_RL-1)+RES_LI_RL

Average interest rate - lagged, annual rate:174:LR LI_R = 0.5*LI_RS(- 1)/100+0.5*SUM( I = -3 TO -1 : LI_RL(I)/100)/3

Real long term interest rate (ex ante):175:LRLR LI_RLR = (1 + LI_RL/100)/(1+0. 1*LI_PI(1)+0.9*LI_PIBAR)- 1

Real ex ante short rate:176:LRSR LI_RSR = (1 + LI_RS/100)/(1+L I_PI ( 1))- 1

Real user cost of capital:177:LUCST LI_UCSTCAP = (LI_DELTA+(1-LI_CTRATE)*LI_RL/100-0. 1*LI_PI (1)-0.9*LI_PIBAR)*(1

-LI_TXCRED-LI_CTRATE*0.2/(LI_RL/100+0.2))/(1-LI_CTRATE)


Price level (GNP deflator):178:LPGNP DEL(1 : LOG(LI_PGNPNO)) = LP1*LOG(LI_CU*0.01)+LP2*DEL( 1 : LOG(LI_CU))-(1-LP3

)*LP2»DEL(1 : LOG(LI_CU(- 1))) + (1-LP3)*DEL(1 : LOG(LI_PGNPNO(-1)))+LP3*(LP4*LI_PI(1)+(1-LP4)*LI_PI)+RES_LI_PGNP

Non-oil GNP deflator:179:LPNO LI_PGNPNO = (LI_GDP*LI_PGNP-LI_PRODOIL*POIL/LI_ER*LE80)/(LI_GDP-LI_PRODOIL)

Nominal GNP identity (solves for absorption deflator):180:LP LI_PGNP*LI_GNP = LI_P*LI_A + LI_XT*LI_PXT-LI_IT»LI_PIT + US_R*LI_NFA(- 1)/LI_ER +

RES_LI_P

Inflation rate (absorption deflator) - annual rate:181:LPI LI_PI = LI_P/LI_P(-1)-l

Prices in foreign markets:182:LPFM LOG(LI_PFM) = W41*LOG(US_PXM)+W42*LOG(JA_PXM*JA_ER/JE80)+W43*LOG(GR_PXM*

GR_ER/GE80)+W44*LOG(LI_ER/LE80)+W45*LOG(SI_PXM*SI_ER/SE80)+W46*LOG(RW_PXM*RW_ER/RE80)

Non-fuel export prices:183:LPXM DEL(1 : LOG(LI_PXM)) = LPXMO+LPXM1*DEL(1 : LOG(LI_PGNPNO))+(1-LPXM1)*DEL(1

: LOG(LI_PFM))+LPXM2»LOG(LI_PGNPNO(-1)/LI_PXM(-1))+RES_LI_PXM

Total exports price:184-.LPXT LI_PXT = (LI_XMA*LI_PXM+POIL/LI_ER*LE80*LI_XOIL)/LI_XT

Manufactured import prices:185:LPIM LI_P1M = (S14*US_PXM+S24*(JA_PXM*JA_ER/JE80)+S34*(GR_PXM*GR_ER/GE80)+ S44»(

LI_PXM*LI_ER/LEBO)+S54*(SI_PXM»SI_ER/SE80)+S64*(RW_PXM*RW_ER/RE80))/LI_ER*GE80+RES_LI_PIM

Import prices-adjusted for (nominal) world trade discrepancy:186:LPIMA LI_PIMA = LI_PIM+T4*WTRADE/LI_ER/LI_IM

Total imports price:187:LPIT LI_PIT = (LI_IM*LI_PIMA+LI_IOIL*POIL/LI_ER*LE80+LI_ICOM*PCOM/LI_ER*LEBO)/

LI_IT

Production function (capacity output):188-.LYCAP LOG(LI_YCAP) = LOG( 1 +LN) *T* ( 1 -LBETA ) + I_OG( LI_K( - 1 ) ) * LBETA+RES_LI_YCAP

Capacity u t i l i z a t i o n :189:LCU LI_CU = 100*LI_GDP/LI_YCAP


Balance of payments (claims on foreigners), current $:190:LNFA DEL(1 : LI_NFA) = (LI_XT*LI_PXT-(LI_IM*LI_PIMA+LI_I01L*POIL/LI_ER*LE80+

LI_ICOM*PCOM/LI_ER*LE80))*LI_ER + US_R*LI_NFA(- 1 ) + RES_LI_NFA

Current account - local currency:191:LCABL LI_CURBALL = US_R*LI_NF A ( - 1 ) / Ll_ER+ ( L I_XT*LI_PXT- ( LI_IM*LI_PIMA-i-L I_I 01 L*POI L

/LI ER*LE80+LI ICOM*PCOM/LI ER*LE80))


- 77 - APPENDIX II

Current account - current d o l l a r :192:LCAB LI_CURBAL = DEL{1 : LI_NFA)

Open interest party condition (solves for exchange rate):193:LER 1+US_RS/100 = ( H-LI_RS/100)*(LI_ER( 1)/LI_ER)+RES_LI_ER

Competitiveness of Man. exports:194:LREER LI_REER = ( -W4 1 ) *LOG( US_PXM) + ( -W42 ) *LOG( J A_PXM* J A_ER/ JE80 ) + ( -W43 ) "LOG (GR_PXM

*GR_ER/GE80) + (-W44)*LOG(LI_PXM*LI_ER/LEBO) + (-W45)*LOG(SI_PXM*SI_ER/SE80)-t-(-W46)*LOG(RW_PXM*RW_ER/RE80)

Nominal effective exchange rate:195:LMERM LI_MERM = EXP((-V42}*LOG(JA_ER/JE80) + (-V43)* LOG(GR_ER/GE80) + (-V44)* LOG(LI_ER

/LE80)+(-V45)*LOG(Sl_ER/SE80))

Foreign export markets for manufact. (using fixed shares):196:LFM LI_FM = ( 54 1 *US_IM-«-S42 * ( J A_I M* JE80 ) + S43* (GR_I M*GE80 ) + S44* ( LI_IM*LE80 ) + S45* (

SI_IM*SE80)-i-S46*(RW IM*RE80))/LE80

MODEL FOR SI*************

1 . Aggregate Demand

Consumption expenditure:197:SC DEL(1 : LOG(SI_O) = SCO +SC1*LOG(SI_W(- 1 )/SI_C(- 1 ) )+SC2*DEL(1 : SI_RLR)+SC3*

DEL(1 : LOG(SI_YD))+RES_SI_C

Consumption of o i l :198:SCOIL DEL(1 : LOG(SI_COIL)) = SCOILO +SCOIL1*DEL ( 1 : LOG(SI_GDP))+ SCOI L2*DEL ( 1 :

LOG(POIL/SI_ER*SE80/SI_PGNP))+ SCOIL3*LOG(POIL(- 1)/SI_ER(-1 )*SE80/SI_PGNP(- 1 ))+SCOIL4*LOG(SI_GDP(-l)/SI_C01L(-l))+RES_SI_COIL

Change in the c a p i t a l stock:199:SK DEL(1 : LOG(SI_K)) = SK1 * LOG(SI_GDP(- 1 )/SI_K(- 1 ))+SK2*DEL( 1 : LOG(SI_GDP))+

SK3*S1_UCSTCAP+SKO+SK4*DUM74+RES_SI_K

Real gross investment:200:SINV SI_INvEST = DEL(1 : SI_K) + SI_DELTA*SI_K(- 1)+RES_SI_INVEST

Manufactured exports - real:201:SXM LOG(SI_XM) = SXO+SX1"LOG(SI_FM)+SX2*SI_REER +SX3*S1_REER(- 1 )+RES_SI_XM

Man. exports - real, adjusted for real world trade discrepancy:202:SXA SI_XMA = SI_XM+T5*WTRADER/SE80

To t a l exports:203:SXT SI_XT = 5I_XMA+S!_XOIL+RES_SI_XT

Imports of manufactures - real:204:SIM LOG(SI_IM) = SI 0 +SI 1 * LOG(SI_A) + SI 2*LOG(5I_A(- 1 ))+ SI3*LOG(SI_PIMA/SI_PGNPNO) +

SI4*T+SI5*LOG(S1_IM(-1))+RES_SI_lM

1mports of o i l :205:SIOIL SJ_IOIL = SI_COIL+SI_XOIL-SI_PRODOIL+RES_SI_IOIL

Imports of primary c ommod i t i e s (from RW only):206:SIC DEL(1 : LOG ( S I_I COM ) ) = S I CO-i-S I C2*DEL ( 1 : LOG ( PCOM/S I_ER / SI_PGNP ) )+ S I C 1 *DEL (

1 : LOG(SI_GDP)) + SIC3*LOG (' PCOM(- 1 )/SI_ER(- 1 )/SI_PGNP(-l)) + SIC4* LOG(SI_GDP(- 1))+SIC5*LOG(SI_ICOM(-l))+RES_SI_ICOM

Total Impor t s:207:SIT SI_IT = SI_IM+SI_IOIL+SI_ICOM+RES_SI_IT

D e f i n i t i o n of domestic absorption:208:SA SI_A = SI_C+SI_INVEST+SI_G+RES_SI_A

ReaI GDP ident i ty:209:SGDP SI_GDP = SI_A+SI_XT-SI_IT+RES_SI_GDP

Def ini t i on of real GNP:210:SGNP SI_GNP = SI_GDP+U5_R*SI_NFA(- 1 )/SI_ER/SI_PGNP + RES_SI_GNP

Net N a t i o n a l Product:2H:SNNP SI NNP = SI GDP-SI DELTA»SI K(-1)


- 78 - APPENDIX II

Capacity Net National Product:212:SNNPC SI_NNPCAP = SI_YCAP-SI_DELTA*SI_K(- 1)

Real Wealth (Financial plus discounted future income):213:SW SI_W = SLAMBDAM*SI_M/SI_P+0.5*( H-SUM(I = -3 TO -1 : US_RL(I)/3)/US_RL)*

SI_NFA/SI_ER/SI_P+SI_NNPCAP*(1-SGBAR)*SRHOBAR*(l/SRRBAR+(SI_CU*0.01-1)/(SRRBAR+SW1)+(SI_PGNP/SI_P/SRHOBAR-1)/(SRRBAR+SW2)-(SI_RSR-SRRBAR)/(SRRBAR+SW3)-((SI_G*SI_P+SI_GEXOG)/(SI_NNP*SI_PGNP)-SGBAR)/(1-SGBAR)/(SRRBAR+SW4))+RES_SI_W

Real disposable income:214:SYD SI_VD = SI_GDP*SI_PGNP/SI_P-SI_DELTA*SI_K(-1)-SI_TAX/SI_P+SI_R*SI_B(- 1)/SI_P

+US_R*SI_NFA(-1)/SI_ER/SI_P-(1-SLAMBDAB)*DEL(1 : SI_B)/SI_P


Total government expenditures - nominal:215:SGE SI_GE = SI_P*SI_G+SI_R*SI_B(- 1) + SI_GEXOG

Government tax receipts:216:STAX SI_TAX = SI_TRATE*(SI_PGNP*SI_GNP-SI_DELTA*SI_K(- 1)*SI_P+SI_R*SI_B(- 1)) +

RES_SI_TAX

Average tax rate (reaction function):217:STRATE DEL(1 : SI_TRATE) = TAU1*DUM*(SI_B(- 1)/SI_PGNP(- 1)/SI_GNP(- 1)-SI_BRATI0) +

TAU2*DUM*DEL(1 : SI_B(- 1)/SI_PGNP(- 1)/SI_GNP(- 1))+RES_SI_TRATE

Government balance sheet identity (solves for government debt):218:SB DEL(1 : SI_B)+DEL(1 : SI_M) - SI_R*SI_B(- 1) + (SI_P*SI_G~SI_TAX+SI_GEXOG) +

RES_SI_B

Definition of nominal government deficit:219:SGDEF SI_GDEF = DEL(1 : SI_B+SI_M)

III. Money and Interest Rates

Money demand function (M):220:SM LOG(SI_M/SI_P) = SMO+SM1*LOG(SI_GNP) +SM2*SI_RS+SM3*SI_RS(- 1 ) + SM4*LOG(SI_M(- 1

)/SI_P(-D )+RES_SI_M

Money supply reaction function :221:SRS DEL(1 : SI_RS) = SR1 *(((1-SM4)*LOG(SI_MT/SI_P)-SM1*LOG(SI_GNP)-SMO-RES_SI_M)

/(SM2+SM3)-SI_RS(-1))+RES_SI_RS

Term structure of interest rates (solves for long term rate):222:SRL SI_RS/100 = SI_RL/100-(S1_RL(1)/SIJRL-1)+RES_SI_RL

Average interest rate - lagged, annual rate:223:SR SI_R = 0.5*SI_RS(- 1 )/100 + 0.5*SUM(I = -3 TO -1 : SI_RL(I)/100)/3

Real long term interest rate (ex ante):224:SRLR SI_RLR = (1 + SI_RL/100)/(1+0. 1 *SI_PI(1) + 0.9*SI_PIBAR)- 1

Real ex ante short rate:225:SRSR SI_RSR = (1+SI_RS/100)/(1 + SI_PI(1))- 1

Real user cost of capital:226:SUCST SI_UCSTCAP = (SI_DELTA+(1-SI_CTRATE)*SI_RL/100-0.1*SI_PI(1)-0.9*SI_PIBAR)*(1

-S1_TXCRED-SI_CTRATE*0.21(SI_RL/100+0.2))/(1-SI_CTRATE)


Price level (GNP deflator):227:SPGNP DEL(1 : LOG(SI_PGNPNO)) = SP1*LOG(SI_CU*0.01)+SP2*DEL(1 : LOG(SI_CU))-(1-SP3

)*SP2*DEL(1 : LOG(SI_CU(-1))) + (1-SP3)*DEL(1 : LOG(SI_PGNPNO(- 1 )))+ SP3*(SP4*SI_PI(1) + (1-SP4)*SI_PI)+RES_SI_PGNP

Non-oil GNP deflator:228:SPNO SI_PGNPNO = (SI_GDP*SI_PGNP-SI_PRODOIL*POIL/SI_ER*SE80)/(SI_GDP-SI_PRODOIL)

Nominal GNP identity (solves for absorption deflator):229:SP SI_PGNP*SI_GNP = SI_P*SI_A + SI_XT*SI_PXT-SI_IT*SI_PITt-US_R*SI_NFA(- 1)/SI_ER +

RES_SI_P

Inflation rate (absorption deflator) - annual rate:230:SPI SI PI = SI P/SI P(-l)-l


- 79 - APPENDIX II

Prices in foreign markets:231:SPFM LOG(SI_PFM) = W5 1 * LOG(US_PXM)+W52 * LOG IJA_PXM*JA_ER/JE80)+W53*LOG(GR_PXM*

GR_ER/GE80)+W54*LOG(LI_PXM*L1_ER/LE80)+W55*LOG(S I _ER/SE80)+W56*LOG(RW_PXM*RW_ER/RE80)

Non-fuel export prices:232:SPXM DEL(1 : LOG ( S I_PXM ) ) =- SPXMO+SPXM1*DEL(1 : LOG ( S I_PGNPNO ) ) + ( 1 - SPXM 1 ) *DEL ( 1

: LOG(si_PFM))+SPXMZ*LOG(SI_PGNPNO(-i)/SI_PXM(-1))+RES_SI_PXM

Total exports price:233:SPXT SI_PXT = (SI_XMA*SI_PXM+POIL/SI_ER*SE80*SI_XOIL)/SI_XT

Manufactured import prices:234:SPIM SI_PIM = (S15*US_PXM+S25*(JA_PXM*JA_ER/JE80) i-S35*GR_PXM*GR_ER/GE80+S45*

LI_PXM*LI_ER/LE80+S55*SI_PXM*SI_ER/SE80+S65*RW_PXM*RW_ER/RE80)/(SI_ER/SE80)+RES_SI_PIM

Import prices-adjusted for (nominal) world trade discrepancy:235:SPIMA SI_PIMA = SI_PIM+T5*WTRADE/SI_ER/SI_IM

Total imports price:236:SPIT SI_PIT = (SI_IM*SI_PIMAtSI_I01L*P01L/SI_ER*SE80+SI_ICOM*PCOM/SI_ER*SE80)/

SI_IT

Production function (capacity output):237:SVCAP LOG(SI_YCAP) = LOG( 1 + SN)*T*( 1-SBETA) + LOGCSI_K(- 1))*SBETA+RES_SI_YCAP

Capacity u t i l i z a t i o n :238:SCU S1_CU = 100*SI_GDP/SI^VCAP


Balance of payments (claims on foreigners), current $:239:SNFA DEL(1 : SI_NFA) = (5 I_XT*SI_PXT-(SI_IM*SI_PIMA +SI_101L*POIL/SI_ER*SEBO +

SI_ICOM*PCOM/SI_ER*SE80) )*SI_ER+US_R*SI_NFA(- 1 )+RES_SI_NFA

Current account - l o c a l currency:240:SCABL SI_CURBALL = US_R*SI NFA(- 1)/SI_ER+(SI_XT*SI_PXT-(SI_IM*SI_PIMA + SI_I01L*POIL

/SI_ER*SE80+SI_ICOM*PCOM/SI_ER*SE80))

Current account - current d o l l a r :241:SCAB SI_CURBAL = DEL(1 : SI_NFA)

Open interest party condition (solves for exchange rate):242:SER 1+US_RS/100 = (1+SI_RS/100)»(SI_ER(1)/SI_ER)+RES_SI_ER

Competitiveness of Man. exports:243:SREER SI_REER = (-W51 )* LOG(US_PXM) + (-W52)*LOG(JA_PXM*JA_ER/JE80) + (-W53)* LOG(GR_PXM

*GR_ER/GE80) + (-W54)* LOG(LI_PXM*LI_ER/LE80) + (-W55)* LOG(SI_PXM*SI_ER/SE80) + (-W56)*LOG(RW_PXM*RW_ER/RE80)

Nominal effective exchange rate:244:SMERM SI_MERM = EXP((-V52)* LOG(JA_ER/JEBO) + (-V53)*LOG(GR_ER/GE80) + (-V54)»LOG(LI_ER


Foreign export markets for manufact. (using f i x e d shares):245:SFM SI_FM = (S51*US_IM+S52*(JA_IM*JE80) +• S53*(GR_IM*GE80) + S54*(LI_IM*LE80)+555*(

SI IM*SE80) + S56*(RW IM*RE80) I /SE80

*****************

MODEL FOR DC*****************

I . Aggregate Demand

Consumption expenditure - i n c l u d i n g p u b l i c :246:DCTOT DEL(1 : LOG(DC_CTOT) ) = DCO + DC1 * LOG(DC_W(- 1 )/DC_CTOT(- 1 ) )+ DC2*DEL( 1 :

DC_DEBT)/RW_ER/DC_P/DC_CTOT(- 1 ) + RES_DC_CTOT

Real gross investment:247:OINV DC_INVEST = DC_GDP-(DC_XM + DC_XCOM + DC_XOIL)-DC_CTOT + DC_I T

Real gross investment in commodity production:248:DINVC DC_INVESTC = RES_DC_INVESTC-» ( I F PCOM/RW_ER/RW_PXM LT i THEN DC^DELTA *DC_KC(

-1) ELSE DC KCOMSHR*DC INVEST)


- 80 - APPENDIX II

Capital stock In commodity production:249:DKC DC_KC = DC_KC(-1)*(1-DC_DELTA)+DC_INVESTC

Capital stock:250:DK DC_K = DC_KC+DC_KM

Real gross investment in manufactures production:251:DINVM DC_INVESTM = DC_INVEST-DC_INVESTC

Capital stock in maufactures production:252:DKM DC_KM = DC_KM(-1)*(1-DC_DELTA)+DC_INVESTM

Manufactured exports - real:253:DXM DC_XM = RW_XM-HO_XM

Man. exports real, adjusted for real world trade discrepancy:254:DXMA DC_XMA = RW_XMA-HO_XM

Commodity exports - real:255:DXC DC_XCOM = RW_XCOM-t-HO_I COM

Oil exports - real:256:DXOIL DC_XOIL = DC_XOILSHR*(RW_XOIL-DC_I01L)+RES_DC_XOIL

Total exports - real;257:DXT DC_XT = DC_XCOM+DC_XOIL+DC_XMA

Imports of o i l :258:DIOIL DC_IOIL = DCJDILSHR*DC_IT+RES_DC_IOIL

Total Imports (solved for imports of manufactures):259:DIT DC_IT = DC_IM+DC_I01L

Definition of domestic absorption:260:DA DC_A = DC_CTOT+DC_1NVEST

Rea1 GDP i dent i ty:261:DGDP DC_GDP = DC_XM+DC_XCOM+DC_XOIL+DC_QNT

Output of non-exported goods:262:DQNT DEL(1 : DC_QNT) = RQNTO*DEL(1 : DC_CTOT)+RES_DC_QNT

Capacity Net National Product:263:DNNPC DC_NNPCAP = DC_VCAP-DC_DELTA*DC_K(- 1 )

Real Wealth (Financial plus discounted future income):264:DW DC_W = DC_NFA/RW_ER/DC_P+DC_NNPCAP*DRHOBAR*(1/URRBAR+(DC_GDP/DC_VCAP*0.01- 1)

/(URRBAR+DW1)+(DC_PGNP/DC_P/DRHOBAR-1)/(URRBAR+DW2)-(US_RSR-URRBAR)/(URRBAR+UW3) )


Nominal GNP identity (solves for absorption deflator):265:DP DC_P = ( DC_PXM*DC_QNT-i-DC_Pl T *DC_I T ) / ( DC_CTOT + DC_I NVEST )

Definition of GDP deflator:266:DPGNP DC_PGNP = (DC_PXM*(DC_QNT+DC_XMA)+PCOM/RW_ER*DC_XCOM+POIL/RW_ER*DC_XOIL)/

DC_GDP+RES_DC_PGNP

Manufactured export prices:267:DPXM DEL(1 : RW_REER) = RPXM 1 »RW_REER(- 1)+RPXM2*LOG(DC_XSM/DC_XM) +RES_DC_PXM

Prices in foreign markets:26B:RPFM LOG(RW_PFM) = W61*LOG(US_PXM)+W62*LOG(JA_PXM*JA_ER/JE80)+W63*LOG(GR_PXM*

GR_ER/GE80)-i-W64*LOG(LI_PXM*LI_ER/LE80)+W65*LOG(SI_ER/SE80)+W66*LOG(RW_PXM*RW_ER/RE80)

Commodity export supply (solves for commodity price):269:PCOM LOG(DC_XCOM) = RXCOM1*LOG(DC_KC(- 1))+RES_DC_XCOM

Total exports price:270:DPXT DC_PXT = (DC_PXM*DC_XMA+PCOM/RW_ER*DC_XCOM+POIL/RW_ER*DC_XOIL)/DC_XT

Manufactured import prices:271:DPIM DC_PIM = RW_PIM+RES_DC_PIM

Import prices-adjusted for (nominal) world trade discrepancy:


- 81 - APPENDIX II

272:DPIMA DC_PIMA = RW_PIMA+RES_DC_PIMA

Total imports price:273:DPIT DC_P1T = fDC_PIMA*DC_IM+POIL/RW_ER*DC_IOIL.)/DC_I T

Production function for manufactured output:274-.DXSM LOG(DC_XSM) = RXSM 1 *LOG(DC_KM ( - 1) ) +RES_DC_XSM

Capacity value of real domestic income:275:DYCAP DC_YCAP = EXP(DVCAPO+LOG(1+DN)*T«(1-DBETA)+LOGCDC_K(-1))*DBETA)


Developing country claims on industrial countries:276:DA5SET DELM : DC_ASSETS) = DASS1 *(RW_ER*DC_XT*DC_PXT + US_R*DC_NFA(- 1 )+DEL(1 :

DC_DEBT))-DASS2*(DC_ASSETS(-l)-DC_IT(-l)*DC_PIT(-1)*RW_ER(-1)*DC_ASSETRAT)+RES_DC_A5SETS*RW_ER

Stock of gross debt owed to the industrial countries:277:DDEBT DEL(1 : DC_DEBT) = ((DC_XT(4)*DC_PXT(4)»RW_ER(4)/(DC_XT(- 1)*DC_PXT(- 1 )*RW_ER

(-1)))**(l/5)-1)*DC_XT(-1)*DC_PXT(-1)*RW_ER(-1)*DDEBT H-DDEBT2*(ISR*DC_PXT(- 1)*DC_XT(-1 )*RW_ER(-1 )/US_RRBAR(-1)-DC_NETDEBT(- 1)J+DDEBT2/10*(ISR*DC_XTNDHIST(-1)/US_RR(-1)-DC_NETDEBT(- 1))+RES_DC_DEBT

Stock of net debt owed to the industrial countries:276:DNDEBT DC_NETDEBT = DC_DEBT-DC_ASSETS

Claims in foreigners , current $:279:DNFA DC_NFA = DC_NFA(- 1 )-DEL(1 : DC_NETDEBT)+RES_DC_NFA

Balance of payments , current $ (solved for imports):280:DCAB DEL(1 : DC_NFA)/RW_ER = DC_PXM*DC_XMA+PCOM/RW_ER*DC_XCOM+POIL/RW_ER*DC_XOIL-

DC PIT*DC IT + US R*DC NFA(- 1)/RW_ER + RES DC CURBAL

MODEL FOR HO*****************

I. Aggregate Demand

0 i 1 export s - rea1 :281:HX01L HO_XOIL = RW_XOIL-DC_XOIL

Total exports - real :282:HXT HO_XT = HO_XOI L-i-HO_XM

Imports of commodities - real:283:HIC DEL( 1 : LOG(H0_lCOM)) = UICO+UIC2*DEL(1 : LOG(PCOM/RW_ER/RW_PXM)) + UIC1*DEL( 1

: LOG(HO_GDP))+RES_HO_ICOM

Imports of maufactures - real:284:HIM LOG(HO_IM) = HI0 + HI 1 *LOG(HO_A)+HI2*LOG(RW_PI MA/(POIL/RW_ER)) + RES_HO_IM

Total i mpo r t s :285:HIT HO_IT = HO_IM + HO_I0 IL + HO_ICOM

D e f i n i t i o n of domestic absorption:286:HA HO_A = HO_GDP-HO_XT+HO_1T

Rea1 GDP i dent i ty:287:HGDP HO_GDP = HO_XT+HO_QNT

Output of non-exported goods:288:HQNT DEL(1 : HO_QNT) = HQNTO*DEL(1 : HO_A)+RES_HO_QNT


To t a l exports price:2B9:HPXT HO_PXT = (RW_PXM*HO_XM+POIL/RW_ER*HO_XOIL)/HO_XT+RES_HO_PXT

Total imports price:290:HPIT HO_PIT - (RW_PI MA*HO_IM+POIL/RW_ER*HO_101Li-PCOM/RW_ER»HO_ICOM)/HO_IT+

RES_HO_PIT


C l a i m s on foreigners , current $:


- 82 - APPENDIX II

291:HNFA DEL(1 : HO_NFA)/RW_ER = HO_PXT*HO_XT-HO_IT*HO_PIT+US_R*HO_NFA(-1)/RW_ER+RES_HO_NFA

*****************MODEL FOR RW*****************

I. International Trade and PricesManufactured exports - real:

292:RXM LOG(RW_XM) = RXO+RX1*LOG(RW_FM)+RX2*RW_REER+RX4*T+RX3*LOG(RW_XM(- 1)) +RES_RW_XM

Man. exports real, adjusted for real world trade discrepancy:293:RXMA RW_XMA = RW_XM+T6*WTRADER/RE80

Commodity exports - real:294:RXC RW_XCOM = US_ICOM+JA_ICOM*JE80+GR_ICOM*GE80+LI_ICOM*LE80+SI_ICOM*SE80

O i 1 exports - real:295:RXOIL RW_XOIL = (-(US_XOIL-US_IOIL+(JA_XOII_-JA_IOIL)*JE80+(GR_XOIL-GR_IOIL)*GE80+(

LI_XOIL-LI_IOIL)*LE80+(SI_XOIL-SI_IOIL)*SEBO))/RE80+DC_IOIL+HO_IOIL

Total exports - real:296:RXT RW_XT = DC_XT+HO_XT-HO_ICOM

Manufactured exports - real:297:RIM RW_IM = DC_IM+HO_IM

Total imports :29B:RIT RW_IT = DC_IT+HO_IT-HO_ICOM

Manufactured export prices:299:RPXM RW_PXM = DC_PXM+RES_RW_PXM

Total exports price:300:RPXT RW_PXT = (HO_XT*HO_PXT+DC_PXT*DC_XT-HO_ICOM*PCOM)/RW_XT

Manufactured import prices:301:RPIM RW_PIM = (S16*US_PXM+S26*(JA_PXM*JA_ER/JE80)+S36*GR_PXM*GR_ER/GEBO+S46*

LI_PXM*LI_ER/LE80+S56*SI_PXM*SI_ER/SE80+S66*RW_PXM»RW_ER/RE80)/(RW_ER/RE80)+RES_RW_PIM

Import prices-adjusted for (nominal) world trade discrepancy:302:RPIMA RW_PIMA = RW_PIM-t-T6*WTRADE/RW_ER/RW_IM

Total imports price:303:RPIT RW_PIT = (HO_IT*HO_PIT + DC_PIT*DC_IT-HO_ICOM*PCOM)/RW_I T

Competitiveness of Man. exports:304:RREER RW_REER = (-W61)* LOG(US_PXM) +• (-W62)*LOG(JA_PXM*JA_ER/JE80) + (-W63)* LOG(GR_PXM

*GR_ER/GE80)+(-W64)*LOG(LI_PXM*LI_ER/LE80J+(-W65)*LOG(SI_PXM*SI_ER/SE80)+(-W66)*LOG(RW_PXM*RW_ER/RE80) '

Nominal effective exchange rate (determines b i l a t e r a l rate):305-.RNEER RW_NEER = EXP( (-W62 ) *LOG( JA_ER/ JE80) + ( -W63 ) *LOG(GR_ER/GE80 ) + ( -W64) *LOG( LI_ER

/LE80)+(-W65)*LOG(SI_ER/SE80)+(-W66)*LOG(RW_ER/RE80))

Foreign export markets for manufact. (using fixed shares):306-.RFM RW_FM = ( 56 ? *US_IM*S62*( JX»_lM*JE80)-»-S63* (GR_JM*GE80)+S64* (L I_IM*LESO)+S65* (

SI_IM*SE80)+S66*(RW_IM*RE80))/RE80

Nominal world trade discrepancy:307:WTRADE WTRADE = US_XMA*US_PXM-US_IM*US_PIM+(JA_XMA»JA_PXM-JA_IM*JA_PIM)*JA_ER+(

GR_XMA»GR_PXM-GR_IM*GR_PIM)*GR_ER+(LI_XMA*LI_PXM-LI_IM*LI_PIM)*LI_ER+(SI_XMA*SI_PXM-SI_IM*SI_PIM)*SI_ER>(RW_XMA*RW_PXM-RW_IM*RW_PIM)*RW_ER+RES_WTRADE

Real world trade discrepancy:308:WTRDR WTRADER = US_IM-US_XM+(JA_IM-JA_XM)*JE80+(GR_IM-GR_XM)*GEBO+(LI_IM-LI_XM)*

LE80+(SI_IM-SI_XM)»SE80+(RW_IM-RW_XM)*RE80+RES_WTRADER

Nominal price of oil :309:POIL POIL = RPOIL*(US_PGNP**UWT*(JA_PGNP*JA_ER/JE80)**JWT*(GR_PGNP*GR_ER/GE80)**

GWT*(LI PGNP*LI_ER/LE80)**LWT*(SI PGNP*SI ER/SE80)**SWT)


- 83 - APPENDIX II

MULTI

UC4V44SK3JICOSX3JIC4JP2GPXM2W33S15JRRBARRX3SLAMBDAMURHOBARSM4LK3DC 1JW4UCOIL2SRHOBARJM1RX1HI5SCOIL2JWTLK1JPXM1GK3SI 1UP4SI4RE80SW3LLAMBDABLI6SMOLE80UIC2DASS2GLAMBDAMUP2SI2GM4UXOHI 1GCOILOGRHOBART3LW3GE80LMOW44UW4LI2UGBARJC1GW3V24JCOILOUW2RXSM1S51HQNTODBETADW1S22W63GIOWl 1JPXMOW34S16V43W61S43

0-1-0- 10000

— 1

000110

-000-0

101

-0-0000-0000101001

-00100011

-01000

-1- 10-00000-000000000

-2-1-000000

.084767

. 1477

. 127629

.066973

. 1 155

.00923

.79701

.084767

.317451

. 23572

.048808

.455525

.24726

.686291

.083715

. 137909

. 156326

.574968

.084767

.7279

. 471 28 1

.678655

.39105

.

. 640144

.3

.694701

. 15908

. 262731

. 1 29

.305137

.551 13

.01748

. 23572

. 704807

. 21574

. 1 1681 7

.6881 18

. 2022

. 37 1 136

. 165462

. 4

.0837

. 25

. 393728

. 281067

. 1899

. 14804

.011412

.3308

.2185

. 155

. 1398

. 355

JX2W62SCOIL4JIC1JIC2JIC5V15JBETAUC2SP3JM3SKISX1GC1V13S65LX3UCOLCOIL2SP1UK4S36DDEBT1JPXM2JI3S63LLAMBDAMJW2DYCAPOV34UK2S34GGBARLRHOBARJI 1S61UIC1GK1UIC4GX1V32W46SBETASW1SRRBARUM3GP1S55W21LCOIL3SIOGM2V53UM1S53LW1UWTW42SC2UR 1W65W13UI 1JK3JX3V45SK4545GC4LPXM2UC3GCOIL4RQNTORX4XNE

-o00-0-o-o00-00-0000000-0-00-0000-001030000110100000000-0000

• -o- 1-0000000

-o1001

-o-00-000000001

.674518

. 1707

.074362

. 140731

.633915

.562377

.2281

.431

.451232

.545376

.022538

. 156326

.775241

. 1 16817

. 1302

.074

.409327

.041001

. 146192

.01 1731

. 1393

.6

.066973

.5923

. 109

.005801

.73926

.3558

.08606

.2813

. 22475

. 2441

.96306

. 156326

.752766

.801924

. 1255

. 1304

.33

. 130632

.01016

.003682

. 146192

. 1861

.050163

.31389

.004576

. 1395

.214589

.3979

. 190243

.354391

. 2261

.451232

. 1872

. 2646

.084767

.388513

.4069

.01 1731

.3738

.066973

.554889

.074362

.5

. 1 15676

S21JGBARS44LCIJIC3GC3JKOULAMBDAMJXOV42W56S42ULAMBDABJI5T4JNW31513SLAMBDABSI6W54SE80LP3LPXMOSM2W25LX1JR1GX3LM4W52UX2HI3LP1GP3UICOW23UIC3UIC5UPXMOLM2UKOS32V55LI4GLAMBDABGI6JC3UCOIL3UI5UNS26SCOIL3GI4W15GPXM1UI3GMO524LIOGI2GW1V22W36SCOGCOIL1T2LC2JP3JK1JX1SP4JM4SK2LCD

0000-0001

-100010000010010-0-0001000-0000-30-0-0-0-000

-10100-0000-0000-0-00-000- 10-0

10-0001000-0

.2582

. 1 1539

. 1 1 68 17

.786279

.554689

. 165885

.76108

. 1076

. 11 68

. 1354

.581637

.232

.057664

.2456

.0772

.

.2746

.545376

.004794

.01047

. 1733

.848594

.

.670109

. 1526

.521364

.368385

. 146192

.545376

.67987

. 1867

. 158202

.785342

.0091

.012774

. 160666

.091 1

.

.554889

.050163

.02971

.2259

.050163

.031432

. 2467

.769417

.800631

.215977

.0535

.430888

.556428

. 1029

.550586

.52871

.087

.451232

.545376

. 156326

.3897

.7279

.638406

.08606

.395676


- 84 - APPENDIX II

SX2JI6S66W32SIC1S1C2SIC4SP2RX2DRHOBARISRJI4JCOIL4RXCOM1LX2S12GCOIL2UK3RXOLIC1LIC2LIC4LP2SMIGPXMOW24JW1LRRBART6UK1UCOILOSW2GIC1GIC3GIC5GP2LW4GBETASCOILOUI6GRRBARGM3HIOUM2554LPXM1JC2GW4DNGM1UW3V52L3 1GWTW14GW2V23JK4W41S23LCOIL1W64LC3JCOIL3UIOJK2

0.0.0.0.2.0.0.0.0.1 .0.0.0.0.0.0.0.0.0.2.0.0.0.0.0.0.0.0.0.0.•0.0.1 .0.-0.0.0.0.•0.0.0.•0.0.-0.0.0.•0.0.0.0.0.0.0.0.0.0.0.-0.0.0.2.0.0.-0.-3.0 .

281083334279

148120595515267571868

734352

03

0743623270179367409882908476776426940126515604151221

06309000363505414478017112121563262569460553958572615961341 1424

2357228122552

0259100492356019901 149630695953054512322357204538924949813771910272951931061692415060456131801 1731185506090001 231245548890501634856608606

GC2V14UPXM1SICOUC1SIC3SIC5JM2SKOSXOLP4SM3LK2W26GK4V35JMOW53LICOS35LIC3LIC5JI2LKOLBETALXOGX2V33LM3W5 1UX1GICOHI2LI5DMALNW22JCOIL2GXOLM1RPXM1S31LWTGI5RX02W16LW2UI4GCOIL3SC3JLAMBDABTAU1W66GI3JCOGR 1T5UBETADW2UCOIL1URRBARGI 1W12SCOIL1UCOIL4W35

-0.0.0.-2.0.-0.-0.-0.0.1 .0.-0.0.0.-o.0.

-1 .0.0.0.-0.-0.-0.0.0.0.-0.- 1 .-0.0.0.-2.0.0.0.0.

-1 .-0.0.0.-0.0.0.0.0.0.0.0.-0.0.1 .0.

-1 .-0.-0.

1 .0.0.0.0.0.1 .0.0.0.0.

451232429270296706B441 1681725645670B04800938815140959628727900390508606103401173130231266220136874783671179167594397581637104782339106083251 1 1

009668254777005423099

704807616738030708

0203191038539315840922249279

6082639 1 1 39035895050163554889

01

740307537243

19934886381927502430273

16469959150743621726

JP1LK4DC2JEBOJCOIL1S14SPXMOW55S41HI6GCOV12S64DCOJW3515LGBARSNTlUX35W4HI4GP4562SGBARGK2UP3SWTSI3533LCOILOSRIGIC2GIC4JIO556GKORPXM2UP1SI 1W45V54LI3RX01JLAMBDAMGNLR1V25W43525JRHOBARTAU2UMO552UPXM2UI2DASS1SPXM1SCIUW1SPXM2546DDEBT2JP4LCOIL4

0.-0.0.4.1 .0.-0.- 1 .0.-0.-0.0.0.

-1 .0.0.0.0.0.0.0.0.0.0.0.0.0.0.

-1 .0.-0.

1 .-0.0.

-1 .0.0.-0.0.1 .0.0.-0.1 .1 .0.1 .0.0.0.1 .0.0.0.0.0.0.0.0.0.0.0.0.0.0.

14619201 173128107142825545182698017B38

321806445325887212508851 277360819

21678015462141

23572

7279297721863086065453761522537

666048

4417184632480664314821924271146192

19125043442325

028079

168626690696

34077521084066973

3651 16817557653.0669732682157279074362


- 85 -

REFERENCES

Amano, Akihiro, Eiji Kurihara and Lee Samuelson, "Trade Linkage Sub-Model inthe EPA World Economic Model," Economic Bulletin No. 19 [July 1980],Economic Research Institute, Economic Planning Agency, Tokyo, Japan.

Artus, Jacques and Anne McGuirk, "A Revised Version of the MultilateralExchange Rate Model," International Monetary Fund Staff Papers. vol. 28[1981], pp. 275-309.

Barro, Robert, "Are Government Bonds Net Wealth?" Journal of PoliticalEconomy, vol. 82 [1974], pp. 1095-1117.

Blanchard, Olivier Jean, "Debt. Deficits and Finite Horizons," Journal ofPolitical Economy, vol. 93 [1985], pp. 233-47.

Blejer, Mario and Mohsin Khan, "Government Policy and Private Investment inDeveloping Countries," International Monetary Fund Staff Papers. vol. 31[June 1984], pp. 379-403.

Bond, Marian, "An Econometric Study of Exports of Manufactures fromDeveloping Countries," International Monetary Fund Working Paper No.WP/87/55, August 1987.

Boughton, James, Richard Haas and Paul Masson, "The Role of Exchange RateMovements in Transmitting International Disturbances," forthcoming in D.R.Hodgman and Geoffrey Wood, eds. Macroeconomic Policy and EconomicInterdependence. Macmillan, New York [1988].

Brayton, Flint and Peter B. Clark, "The Macroeconomic and Sectoral Effectsof the Economic Recovery Tax Act: Some Simulation Results," Staff Study 148,Federal Reserve Board [December 1985].

Bryant, Ralph and others, Empirical Macroeconomics for InterdependentEconomies. Brookings Institution, Washington, D.C. [1988].

Buiter, Willem, "Fiscal Policy in Open, Interdependent Economies," NBERWorking Paper No. 1429 [August 1984].

Calvo, Guillermo, "Staggered Contracts and Exchange Rate Policy," in J.Frenkel, ed. Exchange Rates and International Macroeconomics. University ofChicago Press, Chicago [1983], pp. 235-52.

Clark, Peter C., "Investment in the 1970's: Theory, Performance, andPrediction," Brookings Papers on Economic Activity [1: 1979], pp. 73-124.

Davidson, J.E.H., David Hendry, Frank Srba and Stephen Yeo, "EconometricModelling of the Aggregate Time-Series Relationship Between ConsumersExpenditure and Income in the United Kingdom," The Economic Journal. vol. 88[1978], pp. 661-92.

Deppler, Michael and Duncan Ripley, "The World Trade Model: MerchandiseTrade," International Monetary Fund Staff Papers, vol. 25 [March 1978].


- 86 -

Dooley, Michael, William Helkie, Ralph Tryon and John Underwood, "AnAnalysis of External Debt Positions of Eight Developing Countries Through1990," Journal of Development Economics. vol. 21 [1986], pp. 283-318.

Fair, Ray and John Taylor, "Solution and Maximum Likelihood Estimation ofDynamic Nonlinear Rational Expectations Models," Econometrica vol. 51 [July1983], pp. 1169-85.

Gould, J.P., "Adjustment Costs in the Theory of Investment of the Firm,"Review of Economic Studies. vol. 35 [January 1968], pp. 47-55.

Frenkel, Jacob and Assaf Razin, "The Mundell-Fleming Model AQuarter Century Later: A Unified Exposition," International Monetary FundStaff Papers, vol. 34 [December 1987], pp. 567-620.

Gandolfo, Giancarlo and Pietro Carlo Padoan, A Disequilibrium Model of Realand Financial Accumulation in an Open Economy. Berlin, Springer-Verlag,1984.

Gordon, Robert J., "Understanding Inflation in the 1980's," Brookings Paperson Economic Activity [1: 1985], pp. 263-302.

Haas, Richard and Paul Masson, "MINIMOD: Specification and SimulationResults," International Monetary Fund Staff Papers. vol. 33 [December 1986],pp. 722-67.

Hall, Robert E., "Consumption," NBER Working Paper No. 2265 [May 1987].

Haque, Nadeem and Peter Montiel, "Ricardian Equivalence, LiquidityConstraints, and the Yaari-Blanchard Effect: Tests for DevelopingCountries," International Monetary Fund Working Paper No. WP/87/85 [December1987] .

Hendry, David, "The Econometrics of PC-GIVE," Institute of Economics andStatistics, Oxford, mimeo [November 1987].

Hickman, Bert, "A General Linear Model of World Trade," in R.J. Ball, ed.The International Linkage of National Economic Models. North-Holland,Amsterdam [1973].

Isard, Peter, "Lessons from Empirical Models of Exchange Rates,"International Monetary Fund Staff Papers, vol. 34 [March 1987], pp. 1-28.

and Liliana Rojas-Suarez, "Velocity of Money and the Practiceof Monetary Targeting: Experience, Theory, and the Policy Debate," StaffStudies for the World Economic Outlook. International Monetary Fund [July1986], pp. 73-114.

Kremers, Jeroen, "U.S. Federal Deficits and Debt Service," InternationalMonetary Fund Working Paper No. WP/87/27 [April 1987].


- 87 -

Mann, Catharine, "Prices, Profit Margins, and Exchange Rates," FederalReserve Bulletin, vol. 72 [June 1986], pp. 366-79.

MIT, TROLL Reference Manual. MIT Information Processing Services, Cambridge,Mass. [1983].

Masson, Paul R., "The Dynamics of a Two-Country Minimodel under RationalExpectations," Annales d'Economic et de Statistique. 1987, forthcoming.

Poterba, James and Lawrence Summers, "Finite Lifetimes and the Effects ofBudget Deficits on National Saving," Journal of Monetary Economics vol 14[1987] , pp. 369-91.

Samuelson, Lee, "A New Model of World Trade," OECD Economic Outlook.Occasional Studies [December 1973].

Simpson, Thomas, "Changes in the Financial System: Implications for MonetaryPolicy," Brookings Papers on Economic Activity [1: 1984], pp. 249-65.

Spencer, Grant, "The World Trade Model: Revised Estimates," InternationalMonetary Fund Staff Papers, vol. 31 [September 1984], pp. 469-98.

Suzuki, "Financial Innovation and Monetary Policy in Japan," Bank of JapanMonetary and Economic Studies. vol. 2 [June 1984], pp. 1-47.

Taplin, Grant, "A Model of World Trade," in R.J. Ball, ed. The InternationalLinkage of National Economic Models. North-Holland, Amsterdam [1973].

Taylor, John,"Aggregate Dynamics and Staggered Contracts," Journal ofPolitical Economy, vol. 88, no. 1 [1980], pp. 1-23.

Wyraer, Clifford, "Econometric Estimation of Stochastic Differential EquationSystems," Econometrica. vol. 40 [May 1972], pp. 565-577.


©international monetary fund. not for redistribution · and developing country blocks built to...

Documents