- International Monetary Fund
- Published Date:
- July 1990
“Trade Linkage Sub-Model in the EPA World Economic Model,”Economic Bulletin No. 19, Economic Research Institute, Economic Planning Agency, Tokyo, Japan (July1980).
“Price and Output Effects of Monetary and Fiscal Policy Under Flexible Exchange Rates,”Staff Papers, International Monetary Fund (Washington), Vol. 26 (June1979), pp. 224–56.
“A Revised Version of the Multilateral Exchange Rate Model,”Staff Papers, International Monetary Fund (Washington), Vol. 28 (1981), pp. 275–309.
“Debt, Deficits and Finite Horizons,”Journal of Political Economy, Vol. 93 (April1985), pp. 223–47.
“International Adjustment with Wage Rigidity,”NBER Working Paper, No. 406 (Cambridge, Massachusetts: National Bureau of Economic Research, 1979).
Economics of Worldwide Stagflation (Cambridge, Massachusetts: Harvard University Press, 1985).
“Domestic and Cross-Border Consequences of U.S. Macroeconomic Policies,” in Macroeconomic Policies in an Interdependent World, ed. by Ralph C.Bryant and others (ed) (Washington: International Monetary Fund, 1989) pp. 59–115.
“Death, Birth, Productivity Growth and Debt Neutrality,”Economic Journal, Vol. 98 (June1988), pp. 279–93.
“Staggered Contracts and Exchange Rate Policy,” in Exchange Rates and International Macroeconomics, ed. by Jacob A.Frenkel (ed) (Chicago: University of Chicago Press, 1983), pp. 235–52.
“Consumption, Income, and Interest Rates: Reinterpreting the Time Series Evidence,”NBER Working Paper, No. 2924 (Cambridge, Massachusetts: National Bureau of Economic Research, 1989).
“Sustainability, Premia, and the Dollar,”paper presented at NBER Conference on Financial Crises, Key Biscayne, Florida, February 28, 1990.
“Econometric Modelling of the Aggregate Time-Series Relationship Between Consumers’ Expenditure and Income in the United Kingdom,”Economic Journal, Vol. 88 (December1978), pp. 661–92.
“On Evaluating and Extending the Target Zone Proposal,”Journal of Policy Modeling, Vol. 9 (Spring1987), pp. 199–224.
Fiscal Policies and the World Economy: An Intertemporal Approach (Cambridge, Massachusetts: MIT Press, 1987).
1988a) “International Coordination of Economic Policies: Scope, Methods, and Effects,” in Wilfried Guth, moderator, Economic Policy Coordination (Washington: International Monetary Fund; Hamburg: HWWA-Institut für Wirtschaftsforschung, 1988), pp. 149–92.(
1988b), “International Economic Policy Coordination: Rationale, Mechanisms, and Effects,”paper presented at conference on International Policy Coordination and Exchange Rate Fluctuations, Kiawah Island, South Carolina, October 27–29, 1988. (Forthcoming in a conference volumeedited by W.H.Branson, J.Frenkel, and M.Goldstein, (ed)University of Chicago Press, 1990.)(
1989a), “International Dimensions of Monetary Policy: Coordination Versus Autonomy,”paper presented at a symposium on Monetary Issues in the 1990s, Jackson Hole, Wyoming, August 30–September 1, 1989. (Forthcoming in a volume published by the Federal Reserve Bank of Kansas City, 1990.)(
1989b), “Simulating the Effects of Some Simple Coordinated Versus Uncoordinated Policy Rules,” in Macroeconomic Policies in an Interdependent World, ed. by Ralph C.Bryant and others (ed) (Washington: International Monetary Fund, 1989), pp. 203–39.(
“Understanding Inflation in the 1980s,”Brookings Papers on Economic Activity: 1 (1985), The Brookings Institution (Washington), pp. 263–99.
“MINIMOD: Specification and Simulation Results,”Staff Papers, International Monetary Fund (Washington), Vol. 33 (December1986), pp. 722–67.
“INTERMOD 1.1: A G-7 Version of the IMF’s MULTIMOD,”Economic Modelling (January1990), pp. 3–62.
“Liquidity and Inflation Effects on Consumers’ Expenditure,” in Essays in the Theory and Measurement of Consumer Behaviour: in Honour of Sir Richard Stone, ed. by AngusDeaton (ed) (Cambridge: Cambridge University Press, 1981).
“Monetary Policy, Credibility, and International Repercussions: A Qualitative Assessment,”paper presented at Eastern Economic Association Meetings, Baltimore, Maryland, January 1989.
“Testing Ricardian Neutrality with an Intertemporal Stochastic Model,”Journal of Money, Credit, and Banking, Vol. 20 (February1988), pp. 1–21.
“MULTIMOD—A Multi-Region Econometric Model,”Staff Studies for the World Economic Outlook (Washington: International Monetary Fund, July1988), pp. 50–104.
“The Effects of Industrial Country Fiscal Policies on Developing Countries in the 1980s,”paper presented at a conference on Fiscal Policy, Montreal, December 6–8, 1989. (Forthcoming in Revista Economica, 1990.)
“Fiscal Policy Independence in a European Monetary Union,”paper presented at a conference on Exchange Rate Regimes and Currency Unions, Frankfurt, February 21–23, 1990.
“Evaluating Policy Rules Under Imperfect Credibility,”paper presented at a conference on Empirical Evaluation of Alternative Policy Regimes, The Brookings Institution, Washington, March 8–9, 1990.
“Macroeconomic Effects of Projected Population Aging in Industrial Countries,”IMF Working Paper, No. 90/5 (Washington: International Monetary Fund, January1990).
1989a) “Expectations, Policy Shocks, and Output Behaviour in a Multi-Country Macroeconomic Model,”paper presented at the Annual Meetings of the Canadian Economics Association, Quebec City, Canada (June 1989).(
1989b), “INTERMOD 2.0: Model Specifications and Simulation Properties,”Canadian Department of Finance Working Paper No. 89–7 (December1989).(
“Aggregate Dynamics and Staggered Contracts,”Journal of Political Economy, Vol. 88 (February1980), pp. 1–23.
“A General Equilibrium Approach to Monetary Theory,”Journal of Money, Credit and Banking, Vol. 1 (February1969), pp. 15–29.
“Monetary Policy and Budget Deficits with Overlapping Families of Infinitely-Lived Agents,” (unpublished; Harvard University, 1986).
Occasional Papers of the International Monetary Fund
71. MULTIMOD Mark II: A Revised and Extended Model, by Paul Masson, Steven Symansky, and Guy Meredith. 1990.
70. The Conduct of Monetary Policy in the Major Industrial Countries: Instruments and Operating Procedures, by Dallas S. Batten, Michael P. Blackwell, In-Su Kim, Simon E. Nocera, and Yuzuru Ozeki. 1990.
69. International Comparisons of Government Expenditure Revisited: The Developing Countries, 1975–86, By Peter S. Heller and Jack Diamond. 1990.
68. Debt Reduction and Economic Activity, by Michael P. Dooley, David Folkerts-Landau, Richard D. Haas, Steven A. Symansky, and Ralph W. Tryon. 1990.
67. The Role of National Saving in the World Economy: Recent Trends and Prospects, by Bijan B. Aghevli, James M. Boughton, Peter J. Montiel, Delano Villanueva, and Geoffrey Woglom. 1990.
66. The European Monetary System in the Context of the Integration of European Financial Markets, by David Folkerts-Landau and Donald J. Mathieson. 1989.
65. Managing Financial Risks in Indebted Developing Countries, by Donald J. Mathieson, David Folkerts-Landau, Timothy Lane, and Iqbal Zaidi. 1989.
64. The Federal Republic of Germany: Adjustment in a Surplus Country, by Leslie Lipschitz, Jeroen Kremers, Thomas Mayer, and Donogh McDonald. 1989.
63. Issues and Developments in International Trade Policy, by Margaret Kelly, Naheed Kirmani, Miranda Xafa, Clemens Boonekamp, and Peter Winglee. 1988.
62. The Common Agricultural Policy of the European Community: Principles and Consequences, by Julius Rosenblatt, Thomas Mayer, Kasper Bartholdy, Dimitrios Demekas, Sanjeev Gupta, and Leslie Lipschitz. 1988.
61. Policy Coordination in the European Monetary System. Part I: The European Monetary System: A Balance Between Rules and Discretion, by Manuel Guitián. Part II: Monetary Coordination Within the European Monetary System: Is There a Rule? by Massimo Russo and Giuseppe Tullio. 1988.
60. Policies for Developing Forward Foreign Exchange Markets, by Peter J. Quirk, Graham Hacche, Viktor Schoofs, and Lothar Weniger. 1988.
59. Measurement of Fiscal Impact: Methodological Issues, edited by Mario I. Blejer and Ke-Young Chu. 1988.
58. The Implications of Fund-Supported Adjustment Programs for Poverty: Experiences in Selected Countries, by Peter S. Heller, A. Lans Bovenberg, Thanos Catsambas, Ke-Young Chu, and Parthasarathi Shome. 1988.
57. The Search for Efficiency in the Adjustment Process: Spain in the 1980s, by Augusto Lopez-Claros. 1988.
56. Privatization and Public Enterprises, by Richard Hemming and Ali M. Mansoor. 1988.
55. Theoretical Aspects of the Design of Fund-Supported Adjustment Programs: A Study by the Research Department of the International Monetary Fund. 1987.
54. Protection and Liberalization: A Review of Analytical Issues, by W. Max Corden. 1987.
53. Floating Exchange Rates in Developing Countries: Experience with Auction and Interbank Markets, by Peter J. Quirk, Benedicte Vibe Christensen, Kyung-Mo Huh, and Toshihiko Sasaki. 1987.
52. Structural Reform, Stabilization, and Growth in Turkey, by George Kopits. 1987.
51. The Role of the SDR in the International Monetary System: Studies by the Research and Treasurer’s Departments of the International Monetary Fund. 1987.
50. Strengthening the International Monetary System: Exchange Rates, Surveillance, and Objective Indicators, by Andrew Crockett and Morris Goldstein. 1987.
49. Islamic Banking, by Zubair Iqbal and Abbas Mirakhor. 1987.
48. The European Monetary System: Recent Developments, by Horst Ungerer, Owen Evans, Thomas Mayer, and Philip Young. 1986.
47. Aging and Social Expenditure in the Major Industrial Countries, 1980–2025, by Peter S. Heller, Richard Hemming, Peter W. Kohnert, and a Staff Team from the Fiscal Affairs Department. 1986.
46. Fund-Supported Programs, Fiscal Policy, and Income Distribution: A Study by the Fiscal Affairs Department of the International Monetary Fund. 1986.
45. Switzerland’s Role as an International Financial Center, by Benedicte Vibe Christensen. 1986.
44. A Review of the Fiscal Impulse Measure, by Peter S. Heller, Richard D. Haas, and Ahsan H. Mansur. 1986.
42. Global Effects of Fund-Supported Adjustment Programs, by Morris Goldstein. 1986.
41. Fund-Supported Adjustment Programs and Economic Growth, by Mohsin S. Kahn and Malcolm D. Knight. 1985.
39. A Case of Successful Adjustment: Korea’s Experience During 1980–84, by Bijan B. Aghevli and Jorge Márquez-Ruarte. 1985.
38. Trade Policy Issues and Developments, by Shailendra J. Anjaria, Naheed Kirmani, and Arne B. Petersen. 1985.
36. Formulation of Exchange Rate Policies in Adjustment Programs, by a Staff Team Headed by G.G. Johnson. 1985.
35. The West African Monetary Union: An Analytical Review, by Rattan J. Bhatia. 1985.
34. Adjustment Programs in Africa: The Recent Experience, by Justin B. Zulu and Saleh M. Nsouli. 1985.
33. Foreign Private Investment in Developing Countries: A Study by the Research Department of the International Monetary Fund. 1985.
30. The Exchange Rate System—Lessons of the Past and Options for the Future: A Study by the Research Department of the International Monetary Fund. 1984.
29. Issues in the Assessment of the Exchange Rates of Industrial Countries: A Study by the Research Department of the International Monetary Fund. 1984.
28. Exchange Rate Volatility and World Trade: A Study by the Research Department of the International Monetary Fund. 1984.
26. The Fund, Commercial Banks, and Member Countries, by Paul Mentré. 1984.
24. Government Employment and Pay: Some International Comparisons, by Peter S. Heller and Alan A. Tait. 1983. Revised 1984.
22. Interest Rate Policies in Developing Countries: A Study by the Research Department of the International Monetary Fund. 1983.
20. Alternatives to the Central Bank in the Developing World, by Charles Collyns. 1983.
19. The European Monetary System: The Experience, 1979–82, by Horst Ungerer, with Owen Evans and Peter Nyberg. 1983.
Note: For information on the title and availability of Occasional Papers not listed, please consult the IMF Publications Catalog or contact IMF Publications Services. Occasional Papers Nos. 5–26 are $5.00 a copy (academic rate: $3.00); Nos. 27–64 are $7.50 a copy (academic rate: $4.50); and from No. 65 on, the price is $10.00 a copy (academic rate: $7.50).
MULTIMOD is made available, upon request, to interested researchers; however, special software (in particular, access to the TROLL system) is necessary to use the model.
Model equations are reported using TROLL notation, consistent with the equation listing for the prototype industrial country model in Appendix II: “del” is the first-difference operator, “log” denotes a natural logarithm, “*” indicates multiplication, and “**” exponentiation. Lags are indicated by negative arguments; leads are indicated by positive arguments.
The use of the equilibrium real interest rate to discount labor income means that human wealth is not directly affected by changes in interest rates; instead, this effect is captured by the inclusion of the interest rate directly in the consumption function, as described below.
The three components of absorption—private consumption, investment, and government spending—are deflated by the price index for total absorption.
Moreover, consumption expenditure on consumer durables will add dynamics to the consumption equation; see Leiderman and Razin (1988).
The analysis of the demographic factors affecting saving is presented more fully in Masson and Tryon (1990); but the estimated consumption equation reported there differs slightly from the one discussed below.
This definition differs from the conventional one in that income from financial assets is not included in disposable income.
Even though wealth is lagged in equation (1), it depends on future values of output and prices and thus may be affected by current disturbances to consumption. The instruments were country specific and include the demographic variable, the 1980 dummy, the lagged nominal interest rate, and (in natural logarithms) real government spending, lagged consumption, and changes in the real oil price, real money balances, and population.
The parameters for taxes on capital have been calibrated so that total revenues are similar to estimates obtained from historical data.
The share of debt in total financing is based on estimates of payments on debt service relative to equity that vary across countries, from a low of 0.4 for the United States and Canada to a high of 0.8 for Japan.
RPREM has been calculated so that the estimated market value of the capital stock is roughly equal to its replacement cost in the steady state.
The steady-state market value of the capital stock equals net capital income, YK, capitalized at the real interest rate plus the depreciation rate plus the risk premium:
WKss = YKss/(RSR + DELTA + RPREM).
Taking the partial derivative with respect to RSR after taking logarithms gives
∂[log(WKss)]/∂(RSR) = −[1/(RSR + DELTA + RPREM)].
The exact response depends on the baseline values for inflation and real growth; these figures were obtained using annual rates of inflation and real growth of 4.0 percent and 2.7 percent, respectively.
The previous version of the model allowed short-run price elasticities to differ across countries. When the estimation was extended to all Group of Seven countries, the short-run coefficient for Canada had the wrong sign, although not significantly different from zero. The hypothesis that the short-run price elasticities were the same across all the countries could not be rejected by the data.
INTERMOD (see Helliwell and others (1990)) also allows for current and lagged real exchange rates.
CTRATE can be exogenized by setting DUMCT to zero when the baseline values for CTRATE are constant over the simulation horizon, as in the data base after the early 1980s.
Using domestic absorption as opposed to output in the money demand function gives slightly better estimation results for the eight industrial regions as a group. Using the absorption price in the money demand function implies that a drop in import prices will cause the short-term interest rate to fall with an unchanged money supply. This moderates the interest rate increase in the short run to exogenous domestic spending increases, given the appreciation of the exchange rate that results.
This rule is a variant of the one used by Edison, Miller, and Williamson (1987).
Calvo (1983) derives a model with similar properties to equation (33) using the assumption that contract lengths can be described by an exponential distribution. In contrast, Taylor (1980) makes the assumption that workers bargaining at different times emulate earlier wage increases; furthermore, their bargaining reflects expected future demand rather than just current labor market conditions.
The nonzero constant may reflect measurement problems relative to potential output. In the steady state, inflation settles down to a constant rate, which is also equal to expected inflation; correspondingly, capacity utilization is equal to its normal level, which, given positive constant terms, is slightly less than unity.
Data for capacity utilization were not available for the smaller industrial region on a comparable basis, so it was excluded from estimation. Instruments were the log of money and government spending, the rate of change of the oil price, lagged inflation, capacity utilization lagged once and twice, and time.
This section is very little changed relative to the version in Masson and others (1988). However, work is under way to extend this sector of the model.
The standard fiscal shock reported for the previous version of the model was a temporary increase in government spending, with the tax reaction function turned off in the initial years of the shock. Performing a similar shock with the current version of the model yields a fiscal multiplier of 0.8 for the United States on impact.
The price level in the other ERM countries will rise by the same amount as the German price level in the long run. Over the horizon considered here, however, the price levels in these countries overshoot their long-run values, as domestic interest rates are oriented toward maintaining parity with the deutsche mark as opposed to targeting the domestic money stock.
Over the medium term, a current account target might be more appropriate.
Some of this work first appeared in the October 1989 World Economic Outlook (Washington: International Monetary Fund).
A complete model document is available upon request that contains definitions of all variables, a cross referencing of all variables (that is, the equations in which variables are used), and all the equations of the model with the numerical values of parameters and the estimated coefficients used in place of coefficient mnemonics. It includes equations for each of the industrial countries and the developing country region.