International Macroeconomic Modelling for Policy Decisions

267 Pages·1986·27.045 MB·English

by  A. Italianer, G. d’Alcantara (auth.), P. Artus, O. Guvenen (eds.)

International Macroeconomic Modelling for Policy Decisions
ADVANCED STUDIES IN THEORETICAL AND APPLIED ECONOMETRICS
VOLUME 5
Managing Editors:
J.P. Ancot, Netherlands Economic Institute, Rotterdam, The Netherlands
A.J. Hughes Hallett, University of Newcastle, U.K.
Editorial Board:
G. Adams, University of Pennsylvania, Philadelphia, U.S.A.
P. Balestra, University of Geneva, Switzerland
M.G. Dagenais, University of Montreal, Canada
D. Kendrick, University of Texas, Austin, U.S.A.
J. Paelinck, Netherlands Economic Institute, Rotterdam, The Netherlands
H. Theil, University of Florida, Gainsville, U.S.A.
W. Welfe, University of Lodz, Poland
International
Macroeconomic
Modelling for Policy
Decisions
edited by
P. Artus and O. Guvenen
in collaboration with F. Gagey
1986 MARTINUS NIJHOFF PUBLISHERS ~.
B.
a member of the KLUWER ACADEMIC PUBLISHERS GROUP
DORDRECHT/BOSTON/LANCASTER .~
Distributors
for the United States and Canada: Kluwer Academic Publishers, 190 Old Derby
Street, Hingham, MA 02043, USA
for the UK and Ireland: Kluwer Academic Publishers, MTP Press Limited,
Falcon House, Queen Square, Lancaster LAI 1R N, UK
for all other countries: Kluwer Academic Publishers Group, Distribution Center,
P.O. Box 322, 3300 AH Dordrecht, The Netherlands
Library of Congress Cataloging in Publication Data
Main entry under title:
International macroeconomic modelling for policy
decision.
(Advanced studies in theoretical and applied
econometrics; v. 5)
"Based on an international conference organised by
the Applied Econometric Association (AEA) •.. which
was held in Brussels at the Commission of the European
Communities in December 1983"--Pref.
Bibliography: p.
1. International economic relations--Mathematical
models--Congresses. 2. Economic policy--Decision
making--Congresses. I. Artus, Patrick. II. Guvenen, O.
III. Gagey, F. IV. Applied Econometric Association.
V. Series.
HF1410.5.1577 1985 337'.0724 85-13698
ISBN-13: 978-94-010-8432-1 e-ISBN-13: 978-94-009-4347-6
DOl: 10.1007/978-94-009-4347-6
Copyright
© 1986 by Martinus Nijhoff Publishers, Dordrecht.
Softcover reprint ofthe hardcover 1s t edition 1986
All rights reserved. No part of this publication may be reproduced, stored in a
retrieval system, or transmitted in any form or by any means, mechanical,
photocopying, recording, or otherwise, without the prior written permission of
the publishers,
Martinus Nijhoff Publishers, P.O. Box 163, 3300 AD Dordrecht,
The Netherlands.
PREFACE
This book is based on an international conference organised by the Applied Econo
metric Association (AEA) on International Macroeconomic Modelling which was
held in Brussels at the Commission of the European Communities in December
1983.
On behalf of the Applied Econometric Association, we would like to extend our
thanks to all participants and contributors. This conference would not have been
possible without the cooperation and support of the Commission of the European
Economic Communities and of its Directorate General for Economics and Financial
Affairs (DGII) staff, in particular M. Emerson, A. Dramais, and also H. Serbat of
the Paris Chamber of Commerce and Industry.
Our thanks go also to J.P. Ancot for his constructive comments concerning the
structure of this book.
We are grateful to M. Russo, R. Maldague and Y. Ullmo for opening the con
ference with their stimulating review and comments on the use of international
macroeconomic models; and to R. Bird, A.M. Costa, A. Crockett, H. Guitton,
J.C. Milleron, J. Paelinck, J. Waelbroeck for chairing the scientific sessions.
P. Artus
F. Gagey
O. Guvenen
vi
INTRODUCTION
The main focus of this book is to present recent developments in the construction
and use of international macroeconometric models.
Four main aspects are selected:
(i) analysis of trade linkages and exchange rate determination;
(ii) modelling and simulating the international economy;
(iii) international policy coordination;
(iv) the use of international macroeconomic models.
These four aspects are treated by theoretical and empirical studies to be used
as research and forecasting tools at the universities, research institutes, and inter
national organisations.
The Editors
vii
TABLE OF CONTENTS
Preface P. Artus, v
F. Gagey and
O. Guvenen
PART I: ANALYSIS OF TRADE LINKAGES AND
EXCHANGE RATE DETERMINATION
1. Modelling Bilateral Sectoral Trade Flows A. Italianer and 3
G. d'Alcantara
2. Product Availability, Price Discrimination and J.M. Viaene 39
Interdependent Import Flows
3. Exchange Rate Expectations and Current P. Masson and 53
Balances in the OECD INTERLINK System P. Richardson
4. The Sterling-Dollar Exchange Market 1973-1982: A. Murfin and 79
Surprises and Expectations P. Ormerod
PART II: MODELLING AND SIMULATING THE
INTERNATIONAL ECONOMY
5. An Aggregate Model of the World Economy P. Artus 105
6. A Globus OECD/COMECON Simulation Model G. Kirkpatrick 129
7. Competitiveness and Employment in the Large E. Kremp and 159
Industrialized Countries J. Le Dem
8. The Current Account of the United States, P. Hooper and 181
Japan and Germany: A Cyclical Analysis R. Tryon
PART III: INTERNATIONAL POLICY COORDINATION
9. The Coordination Approach to Policymaking in A.S. Brandsma and 209
Interdependent Economies A.J. Hughes Hallett
10. Simulating Economic Policy with the COMET A.P. Barten and 229
Model G. d'Alcantara
viii
PART IV: THE USE OF INTERNATIONAL
MACROECONOMIC MODELS
11. Making International Economic Forecasts J. Llewellyn, 241
L. Samuelson and
N. Vanston
12. International Macroeconomic Modelling for O. Guvenen 259
Policy Decisions: Some Proposals
PART I
ANALYSIS OF TRADE LINKAGES AND
EXCHANGE RATE DETERMINATION
3
CHAPTER 1
MODELLING BILATERAL SECTORAL TRADE FWWS
A. Italianer* and G. d'A1cantara**
*Katholieke Universiteit Leuven, Belgium; **Katholieke Unviersiteit Leuven
and CORE, Belgium
1. INTRODUCTION
The recession that has set in in the aftermath of the second oil crisis is taking such
a shape that one is more and more tempted to compare it with the Big Recession
that occurred about a long wave of 50 years ago.
Somewhat loosely speaking, one might say that Keynes' 'diagnosis' of underex
penditure and 'treatment' of government stimulation formed part of a macro-econo
mic answer to the pre-war problems that proved to be right in the course of history.
The present recession, however, is of a much more complicated nature in several
respects. It is dealing simultaneously with the financial problems and instability in
general of the developing countries, and large government budget deficits (due to
slackening growth, rigid expenditure patterns and expensive social security systems),
low investment (due to high interest rates and uncertain expectations), high
unemployment and numerous sectoral problems against a background of political
instability, increasing protection and fierce international competition.
A common factor that applies to several items appearing on this list of sadnesses
is the interdependent nature of things. Each national multiplier corresponding to a
measure of one single government is confronted with a relatively high import leakage
so to speak.
The complicated nature of the recession and the interdependencies that pull the
world back and forth in the course of its development exclude a Keynesian one
problem - one solution analysis of the state of affairs. And what is more, the
increased validity of an economic law of communicating (and probably leaking)
fusts prevents individual governments from taking effective action on their own.
The consequences of these conclusions for econometric modelbuilding are two
fold. First, we cannot any longer rely on relatively simple macro-economic models
to deal with questions that require anything but a macro-economic analysis. Second,
Artus, P. and Guvenen, O. (eds.): International Macroeconomic Modelling for Policy Decisions.
© 1986. Martinus Nijhoff Publishers, Dordrecht/Boston/Lancaster.
ISBN-13: 978-94-010-8432-1