Automobile prices and protection: The U.S.-Japan trade restraint

We examine the effects of the U.S.-Japan trade restraint on automobile prices and quality upgrading, for both Japanese imports and American small cars. From April 1981 to April 1984 the suggested retail price of all Japanese models increased by 15.8 percent, or 5.3 percent per year. We find that nearly the entire amount of this rise can be explained by the upgrading of individual models. This upgrading may benefit consumers who would purchase a luxury import in any case, but harms those who desire the basic imports. In addition to upgrading, we conclude that a second cost of the trade restraint has been to prevent the yen depreciation from being passed onto American consumers, in terms of lower imported auto prices. For U.S. small cars we find a 9.1 percent rise in the suggested retail price, or 3 percent per year, with a fraction of this amount due to model upgrading. If the yen depreciation had led to lower import prices without the trade restraint, then we expect that U.S. auto prices would have been lower, too.     

The impact of a Tax-Based Incomes Policy on U.S. macroeconomic performance: An optimal control study

This study attempts to estimate the potential impact of a Tax-Based Incomes Policy (TIP) on macroeconomic performance by applying an optimal control algorithm to the Wharton Quarterly Econometric Model. A TIP is any tax incentive that would induce firms and/or workers to reduce wage increases. Our study is applicable to any version of TIP. To isolate TIP's potential impact, we compare the optimal path of the economy without TIP to the optimal path of the economy with TIP. Our conclusion is that a TIP may be able to significantly improve the path of inflation, unemployment, and real GNP simultaneously.     

Must high commodity prices depress the world economy? An application of a world model system

The impact of higher primary commodity prices on the world economy is central to the North-South dialogue. The less developed countries are seeking a way to obtain a larger share of world income. In the context of current discussions of commodity price stabilization, UNCTAD's “integrated programme” for example, this is likely to mean higher commodity prices. A critical question is then, “Must higher prices for primary commodities depress the industrial economies?”The cyclical swing of 1973–1975 would seem to support the thesis that high primary commodity prices lead to recession in the industrial countries. Yet this experience is not conclusive evidence. Many complex forces, some natural and others policy induced, accounted for the recession. The impact of primary commodity prices must be considered in a full system, recognizing not only the direct costs, but also the resulting demand feedback. Under different circumstances, higher payments to the commodity producing LDCs may well increase demand for manufactures and stimulate exports and industrial activity in the developed countries.This paper uses a version of the LINK world model system to examine the linkages between commodity prices and world economic activity. In the first part we examine the demand feedback in a simple theoretical model of the interrelationships between commodity consumer countries and the commodity producers. In the second part we use an empirical system, COMLINK, the version of the LINK system that incorporates commodity models and commodity price linkages, to simulate various types of commodity price impacts.     

Efficiency of spatial price discovery for U.S. rice under different farm policies and economic conditions

Changes in the discovery of U.S. spatial milled rice prices due to the shift from stable economic conditions and government policy of supply control in the 1960s to the more variable economic conditions and market-oriented rice farm policy of the 1970s are investigated. Efficiency of the markets was evaluated in terms of the magnitude and speed of price adjustments over three different time periods. The efficiency of the price discovery process is of concern to policymakers because firms must receive price signals quickly and accurately in order to use their resources optimally.     

The bureaucratic response to economic fluctuation: An econometric investigation of Hungarian investment policies

This paper develops bureaucratic response functions within a “deviation from trend” econometric model to determine those factors that were related to fluctuations in aggregate investment finding and in the sectoral distribution of that aggretate during 1960–1975. Investment in buildings and investment in machinery are analyzed separately. On the national level, investment funding is found to respond to indicators of well-being, plan targets, bottlenecks, and foreign trade variables. Sectoral investment funding is based mainly on priority considerations.     

Economic evaluation of an agricultural sector investment program: A case study for Peru

An evaluation of a sector-wide investment program differs in important respects from an evaluation of an individual project. First, the program as a whole is likely to have more than a marginal effect on production and trade levels and other variables, and so the returns to any one project depend on which other projects are included in the program. Therefore the evaluation of all projects in the program must be carried out jointly. Second in many cases Policy makers may judge alternative program designs according to a multiplicity of criteria, explicitly or implicity. Hence the project identification stage of work is more useful if it takes into account the multiple criteria. This paper reports an experience in constructing and applying a model for the design and evaluation of a sector-wide agricultural investment program. Emphasis is placed on the ways in which such a model may be used. In the course of the applications discussed here, policy makers' preference weights among alternative goals were elicited, but even without such information a model-based exercise can be helpful in the design of a sector investment program.     

Dollar appreciation,deficit stimulation,and the new protectionism

This article probes whether contemporary U.S. protectionism arises from an appreciating dollar. It concludes that (a) an enrich-thy-neighbor policy of upvaluation has transformed the current U.S. economic recovery into an engine of global recovery; (b) flexible exchange rates continually equilibrate the balance of payments as evidenced in changed domestic—relative to foreign—prices, as well as in capital movements induced by interest-rate differentials resulting from exchange-rate shifts; and (c) flexible exchange rates automatically alter so as to maintain a country's competitive position in the world economy even when facing deficits at home and abroad.     

Trade frictions and productivity performance—Technological, Price, and cost competitiveness of Japan and U.S. exports

Over the last two decades Japanese industry has increased its share of world exports, and hence their competitiveness, while U.S. industry has declined in shares and competitive position. Focusing on cost competitiveness of Japanese and U.S. manufacturing exports, a model was developed to explain relative export performace of the two countries by relative technological progress and the resulting cost advantage. It is shown that technological progress and cost factors are important in determining relative exports of the two countries. It is also indicated, however, that problems for U.S. export industries in particular are not only their slower productivity growth, relative to Japanese industries, but also the lack of association of their productivity growth and cost factors with their export growth.     

Identity-based planning of prices and quantities: Cambridge and neoclassical models for Brazil

The paper uses two extensions of standard “sources of growth” analysis to develop price-endogenous medium term planning models for Brazil. The model constructed on the basis of neoKeynesian (or Cambridge, England) assumptions is shown to describe Brazilian growth and distribution changes in the 1960s better than the alternative neoclassical model. In forecasting exercises for the 1970s, both models point to a trade-off between increased inflation and a higher labor share. The neoclassical variant suggests that potential balance of payments difficulties can be offset by opportune devaluation, but the Cambridge results are much less optimistic. Current events suggest that this pessimistic view may be closer to the mark.     

Protectionism: An analysis from project LINK

The LINK system of world trade is used to examine present tendencies toward protectionism. In protectionist scenarios we increase the prices of manufactured imports into 13 LINK-OECD countries by 5, 10, and 20 percent respectively, for 1978–1979. If a country's import equations do not depend significantly on relative price, we impose corresponding quantitative import restrictions of 5, 10, and 20 percent. Smaller OECD countries, developing countries, and socialist countries are assumed to be nonprotectionist in these scenarios. The discrepancies between the values of leading variables in the protectionist scenarios and in a baseline case show the effects of the different degrees of protectionism assumed. The results describe and validate Adam Smith's principles of the gains from free trade.     

Prices in input-output: The INFORUM experience in modeling the U.S. deregulation of domestic oil

Prices, and particularly relative prices, have moved in recent years to the center of our attention. Soaring oil prices, large increases in agricultural prices, and rising costs of product materials and finished goods on world markets have set in motion major changes in the world economy. To model these changes, it has been necessary to use input-output analysis, for our input-output models have the necessary detail to trace these effects. This use of input-output may seem paradoxial to those who, for many years, dismissed this technique because it allegedly fails to take account of the effects of prices. The truth turns out to be almost the reverse: Only input-output can take full account of prices.This paper shows how prices work in the INFORUM model of the American economy. Specifically, it describes how the model generates prices, uses the prices in equations for personal consumption, and changes input-output coefficients on the basis of relative prices. Finally, it compares runs of the entire model to examine the effects in the U.S. of increasing domestic oil prices to world levels.     

The impact of higher energy prices on growth and inflation in an industrializing economy: the Korean experience

The first serious problem faced by the Korean economy in recent years is the stagflation caused by the increasing energy cost of imported oil. How much does the oil crisis contribute to Korean inflation and unemployment? To answer the question, a variable input-output model is introduced. It differs from conventional models in one important respect: it allows the industrial structure to change in response to changing input costs. Under the model, the technical coefficient becomes an endogenous variable, a property that conventional input-output models fail to share.     

The impact of the Soviet Union upon the U.S. feed/livestock sector— An assessment

In this article, the impact of volatile Soviet Union corn imports on the U.S. feed/livestock sector is analyzed using an econometric model. The model's attention to supply response when feed price changes enables it to determine the nature of the effect of exogenous shocks across feed and livestock sectors. The model is used in historical simulation to demonstrate the effects of actual and alternative paths of variable Soviet import demand and to explore the difficulties of deriving a stabilizatior policy for these linked sectors.     

A disaggregated model of world production and trade: An estimate of the impact of the Tokyo Round

We present in this paper a computational model of world production, trade, and employment that is disaggregated by country and sector and report on the application of the model to the changes in tariffs and quantifiable nontariff barriers negotiated in the Tokyo Round that was concluded in 1979. The model incorporates supply and demand functions and market-clearing conditions for 22 tradable industries, plus markets for 7 nontradable industries, in each of the 18 major industrialized countries and 16 major developing countries. The equations of the model are presented in the text and the explicit functional forms in an appendix. The implementation of the model is discussed briefly.Application of the model to the Tokyo Round suggested that there will be small but beneficial effects on trade, domestic prices, and economic welfare in practically all the major industrialized countries and in some of the major developing countries. Because many of the NTB codes negotiated in the Tokyo Round were stated in advisory terms, their impact cannot be evaluated unambiguously at present. Further, many existing NTBs of importance were exempted altogether from the negotiations. The Tokyò Round must be viewed accordingly as having dealt with a somewhat limited part of all interferences with trade.     

Costs and distortion of U.S. regulation policy in intercoastal lumber shipping

This article quantitatively analyzes the various impacts of current U.S. coastal restrictions on the Northwest lumber industry. The history of U.S. maritime regulation is briefly reviewed and a simulation model is developed to measure its affect on lumber shipments and transport costs. The results of the model indicate that aggregate cost redutions obtained through deregulation are likely to be small. The pattern of intercoastal shipments could change a great deal, however, with U.S. producers picking up a large share of the Northeast market.     

Optimal control of large nonlinear models: An efficient method of policy search applied to the Dutch economy

A modification of optimal control for an economy under uncertainty, by splitting the technique into a simulation phase and a control phase, makes policy optimization feasible for large-scale nonlinear models. The advantages of this approach in a policy search are clearly illustrated by an application to Dutch economic planning. A historical analysis shows that it is important to treat unemployment and the balance of payments as the key targets. That dual target strategy, worked out for the current planning period, leads to economic expansion and employment creation rather than retreachment.     

Partial vs. general equilibrium analysis and choice of functional form: Implications for policy modeling

In formulating empirically tractable, economywide models, researchers are often forced to employ “convenient” functional forms. These forms embody restrictive maintained hypotheses. Alternatively, flexible functional forms may be utilized in a partial equilibrium setting. Estimation and incorporation of flexible functions into computable general equilibrium models is considerably more demanding of research resources. Assuming that shortcuts will continue to be necessary for researchers attempting to respond to current policy problems, this paper compares these two alternatives. Specifically, a general equilibrium model for New York State is employed to evaluate the relative performances of flexible partial equilibrium models and their more restrictive, general equilibrium counterpart. In the particular application considered, the former approach is found to dominate the latter.     

Trade liberalization and labor market disruption

In the depressed economic climates which have prevailed in recent years, the most common ground for opposing trade liberalization has been fear of the short-run adjustment costs, especially in the labor market. A computable general equilibrium model (ORANI) is used to explore the amount of occupational disruption (on a 72-occupation classification) likely to be generated in the Australian labor market by four alternative trade-liberalization packages, all of which reduce the average rate of protection by 25 percent. We conclude that in all cases the disruption involved would be slight relative to historically experienced occupational change.     

Indexation of international commodity prices through international buffer stock operations

The developing economies have been advocating the indexation of the prices for their primary commodity exports by tying such prices to other relevant international prices, such as the prices of imports to the less-developed countries. We have used econometric models to simulate a program of indexation of the prices of the ten UNCTAD core commodities at their 1963 levels for 1963–1975. The results suggest definite difficulties in such a program. Most notably the order of magnitude of the costs of buffer stock operations and financing is likely to be prohibitive. Also the distribution of benefits and losses among the less-developed countries is quite arbitrary. Therefore we are very skeptical about indexation by buffer stock operations.