A general model of family income distribution: Chicago and Cambridge reconciled

In the first part of the present study it is shown that the theories of personal income distribution developed in the past one hundred years are partial and incomplete even when integrated. Because they stop short of offering a promise of a general distribution theory, the second part of the study proposes a general scheme anchored upon an all-inclusive concept of both human and material capital. Prevailing inheritance models are evaluated in the third part of this study, while the basic model appears in the fourth. It is a theoretical model but is rooted in an actual economy, namely, Brazil. An emperical application of the model is given in the final section. Since income distribution involves social welfare, the study ends with a dynamic policy analysis in which optimal time paths of changes in different policy instruments are computed for the attainment of planned redistribution goals during specified time periods.     

The World Bank model for global interdependence: A quantitative framework for the World Development Report

This paper describes the basic structure of the Global Model used in preparing various parts of the World Development Report (WDR) issued annually by the World Bank. The report is designed to help clarify linkages between the international economy and the domestic strategies of developing countries. The paper is divided in four parts. The first two present different aspects of the model structure and discuss the reasons that induced the authors to orient themselves towards given functional specifications. In the final parts the policy relevance of the exercise is studied in light of the results that the model has produced for 1975–1985.     

A model of the inflationary process in six major O.E.C.D. economies: Empirical results and policy implications

In contrast to most recent empirical work on inflation which has concentrated on the size and stability of coefficients in the wage equation, this paper provides a reexamination of the price equation. Evidence is presented on the structural determinants of inflation in six large industrial nations. It is demonstrated that price equations which include capital costs and excess demand among the regressors perform exceedingly well according to the usual statistical criteria. The results of this study indicate that the inflationary process possesses a high degree of uniformity among the larger industrial countries. This pertains not only with respect to the specific independent variables in price equations, but also with respect to the high degree of uniformity of the estimated coefficients. Additionally, the findings indicate that lower productivity growth and higher capital costs have contributed significantly to the inflationary process since 1974. Furthermore, since higher capital costs are one consequence of tighter monetary policies, the adoption of such policies in response to the two oil price shocks of the 1970s may have offset their intended deflationary effects on prices through the linkage of wage costs and aggregate demand.     

What's really new about policy modeling? An assessment on the basis of the U.S. federal government experience

This article is an attempt to look at where policy modeling is today in reality as opposed to where it is often perceived to be by those who are its proponents. To do this, an impressionistic survey is made of the state of the art, looking at such factors as model theory, structure, data, validation, and uses. Finally, some effort is made to take the results of this examination and use the conclusions reached to suggest what the future of policy modeling might be and what yet unexplored avenues remain to the model builders and users.     

A world iron and steel economy model: A projection for 1980–1995

This article presents an aggregate global model that projects steel markets for the period 1980–1995, with particular attention to investment in production capacities. The model is developed as a linear complementarity programming problem. The model distinguishes between newly constructed steel mills and average mills to characterize price formation and quantity balances respectively. Various validation tests of the model are discussed.     

Welfare effects of demand management policies: Impact multipliers under alternative model structures

This paper explores the sensitivity of multiplier estimates under three alternative assumptions about factor supply. For this purpose, we have used a general equilibrium model of Malaysia which allows endogenous determination of factor and output prices and which permits substitution in both production and demand in response to price. The structure of the model and three alternative factor supply assumptions under which the model can be solved are described. These alternative assumptions amount to alternative “closure rules.” The results of a general increase in demand as estimated under each of the alternative closures are then presented. Finally, we examine the results of two specific types of demand increase under each of the closure rules, focusing especially upon welfare related variables such as real household consumption levels.     

Interest rate policies and inflation in interdependent economies: Recent policy dilemmas

This paper examines Federal Reserve Board policies that are premised on a negative short-run association of interest rate movements and the rate of inflation. In particular, econometric evidence is provided, supporting the view that tighter monetary policy appears to raise inflation rates in the short run. Conversely, it is demonstrated that easier monetary policy does not necessarily raise inflation rates in the short run. In the case of uncoordinated monetary restrictiveness, interest rate competition among major countries can produce higher inflation and lower growth than was originally intended.     

An econometric model of the agricultural sector of the Indian economy

The interrelationships between production, consumption, and stocks are studied in an interdependent framework for two groups of agricultural commodities, namely foodgrains and nonfoodgrains, with a view to obtain policy guidelines for agricultural growth. The model is formulated with aggregate information over the period 1951–1975 and both static and dynamic simulation along with multiplier analysis are carried out to assess the performance of the model. The study reveals that if there had been no PL 480 aid from the U.S. imports, foodgrain prices would have been higher than observed prices. Ex-ante forecasts to 1985 suggest some need for adequate planning with regard to stockbuilding.     

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.     

Consistent price determination of income and production: A singular equation system applied to the MPS model

In this article we present a general methodology that can be used to estimate a singular equation system of relative prices for a large disaggregated macroeconometric model (MPS). The accounts consistency requirements and the necessity to utilize distributed lag restrictions and to impose a serial correlation structure on the estimated model make these sum constraints rather cumbersome. Estimates of the MPS model and multiplier analysis illustrate the use of these constraints on a large forecasting model as well as the feasibility of the technique.     

International Impacts of protection: model structure and results for FC agricultural policy

A dynamic international commodity trade model is introduced that combines stochastic production with three features: multimarket dynamics, endogenous trade policy behavior, and endogenous stock-holding behavior. The significance of these features is illustrated using versions of the model with each excluded in turn. Their role in policy analysis is examined by using each version to measure the impacts of the grain-meat components of the European Community's Common Agricultural Policy. The absence of each is found to alter significantly the estimated terms of trade, trade volume, and welfare effects. Endogenous stock holding is found to be especially important when insulating trade policies are reprented in the model.     

Multiple objective policy analysis: A factor analysis and tradeoff approach applied to the agricultural sector of the Dominican Republic

The technique of factor analysis is applied to a situation in which result data from multiple objective policy analysis need to be reduced to a subset of information for policy makers. Use of factor analysis in this context is developed in some detail, and the process is applied to results of pricing policy simulations from a model of the agricultural sector of the Dominican Republic. It is concluded that factor analysis can be a useful first step for the analyst to determine the relationships among groups of variables. The technique also aids the process of data reduction to allow graphical presentation of tradeoffs.     

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.     

Political confrontation over fiscal processes: The impact of the U.S. Congressional Budget Act

In July 1974 the U.S. Congressional Budget Act was signed into law. This legislation was the result of a heavily fought political confrontation between President Nixon and Congress over who controlled the Federal budget. In addition to the issue of control, the Act was prompted by dissatisfaction with the procedures used by Congress to determine Federal receipts and expenditures. The purpose of this paper is to assess the impact this legislation had on the U.S. economy in its early years.The first section of the paper sets up a simple modeling framework. The model is specified so as to illustrate how a change in the budget process resulting from the Congressional Budget Act could potentially produce changes in the level of total output. This section also explains the derivation of a tax and expenditure series used in the model's empirical testing. The second section addresses some of the theoretical issues, and presents the results of simulations based on the Chase, Wharton, and Data Resources econometric models. Broad conclusions are gathered in the final section.     

An international trade model to capture linkages among supply-constrained economies

The development of a country's domestic and international markets depends on its own actions as much as on those of its trading partners. The study of market linkages is thus vital for policy making. Borrowing from the conceptual framework of Leontief's input-output analysis and from the national accounts equation, this paper presents a new model to calculate multilateral trade multipliers while minimizing data requirements. The novelty of the approach consists in the column-wise (supply-oriented) normalization of trade as opposed to the row-wise (demand-oriented) normalization that prevails in the literature. The explanatory power of the model has been successfully tested on data that refer to 1973–1974. Divergence from reality inevitably reflects the great fluidity that characterized trade during that period. Although most successful when applied to trade among supply-oriented economies (such as those of socialist or developing countries), at present empirical tests have been run only for a handful of OECD and OPEC countries.     

A family income distribution model for regional (Massachusetts) policy analysis

An earned family income distribution model for Massachussets is described. This model could be estimated and used for other national or subnational regions for which the micro data required to generate earned family income distribution at working period rates are available. The model is distinguished by its explicit inclusion of male- and female-headed families without earnings and by its attention to employment structure, labor market conditions, and wage acceleration. There is presented a policy simulation that shows the effects on earned family income distribution of cutting the Massachusetts corporate profits tax and offsetting the lost revenue with a luxury goods sales tax.     

The impact of trade policies on income distribution in a planning model for Colombia

This paper develops a multisector Computable General Equilibrium (CGE) model to simulate the effects of trade on the distribution of income among socioeconomic groups defined both by the factors of production they own and the sector in which they work. The categorization of recipients includes landless rural labor, land owners, workers in the urban traditional sector, and workers in the organized sector and capitalists. Experiments are conducted with an application to Columbia, a primary-exporting economy. The results indicate that, for such an economy, outward-looking policies with increased primary exports are likely to be more detrimental for the distribution of income in the medium term than inward-looking ones.     

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.     

North-South relations: Alternative policy simulations for the world economy in the 1980s

This article makes projections of the world economy in the North-South context for the period 1981–1990 using a latest global version of a macroeconomic model named FUGI-GNEM type IV 011–62. The model classifies the world into 62 countries/regions, where the North-South interdependence is incorporated into an integral part of the world economy through international economic linkages. Based on alternative simulations, the author presents future images of the North-South interdependent world economy through changes in economic growth rates, employment, wages, prices, money supply, interest rates, public finance, trade, capital movement, international balance of payments, foreign exchange rates, etc., in each country or region. The model forecasts that the real economic growth of the developing countries as a whole in the 1980s will likely be around 4%–7% annual rate according to alternative policy scenarios.     

Prospects for trade in manufactured goods between industrial and developing countries, 1978–1990

This paper examines prospective changes in trade in manufactured goods between the industrial and the developing countries. Assuming the continuation of the policies followed by the industrial countries, it is projected that the manufactured imports of these countries from the developing countries would rise at an average annual rate of 12.5% between 1978 and 1980 while their manufactured exports would increase 9 7% a year. Nonetheless, the export surplus of the industrial countries in trade in manufactured goods would rise, contributing to the growth of industrial output. The expansion of their exports of manufactured goods would also contribute to economic growth in the developing countries, and both groups of countries would benefit from specialization according to comparative advantage.