Silviase/jgov_v1.4_full_ann huggingface dataset:
## （５）被災地の水産業の復興を後押しする継続的な支援

東日本大震災の被災地の水産業を支援する取組が各地で続けられており、被災地を元気づける大きな力となっています。被災地の水産業の本格的な復興に向け、息の長い支援が必要であり、今後とも支援活動の輪を拡げていくことが重要です。

# カキの消費拡大に向けた産地間の連携（広島県・宮城県）

広島県は、宮城県のカキ養殖業の復興を支援するため、震災発生後速やかに、県の緊急支援事業により、①養殖いかだの資材提供、②いかだの組み立て作業にあたる広島県のカキ養殖業者の現地派遣等の支援を行いました。

また、広島県は、宮城県のカキ養殖業の早期復興とともに、カキ養殖の2大産地である両県が力を合わせ、カキの全国的な消費拡大を図ることを目的として、宮城県に連携を呼びかけました。これを受け、平成24（2012）年11月2日、広島、宮城両県及びJF広島漁連、JFみやぎの4者は、連携してカキの消費拡大キャンペーンに取り組むための協定を締結しました。

平成25（2013）年1月に池袋で開催されたカキフェスタの様子

キャンペーンの一環として、レシピサイト「クックパッド」で「牡蠣レシピコンテスト」を実施し、優秀作品のPOP広告等を首都圏の量販店約700店舗に掲示しました。また、平成25（2013）年1月には、都内において復興支援「カキフェスタ」を実施し、レシピカード（牡蠣レシピコンテスト入賞作品）の配布や広島・宮城の両県産カキを使った料理の試食等を行い、多くの人々にカキの魅力をPRしました。

カキ養殖の2大産地である両県が連携して進める消費拡大の取組は、本格的な復興に向けて日々作業を進めている宮城県のカキ養殖業者を力づけるものとなっています。
<分析 1>

# The Insulation and Transmission Mechanisms of Floating Exchange Rates Analyzed by the EPA World Econometric Model $ ^{*} $

The Group of the EPA World Model,

Economic Research Institute,

Economic Planning Agency.

Deputy Director General

North American Unit

European Unit

Pacific Unit

Trade-Linkage Model : Masaru Yoshitomi

: Yasuko Niimura,

Katsuki Oda,

Masaru Ishio,

Mamoru Ohbayashi

System Management Unit : Seiichi Itoh,

Takahiro Sasaki,

Keiichi Yahagi

: Masataka Hirono,

Haruko Hirose,

Norikazu Yasuhara,

Motozumi Miwa

: Takuma Nishida,

Noriki Hirose,

Tetsushi Ueda,

Junichi Kawanishi

: Masahiro Matsuda
## Part I

# I. Main Purpose of the Paper and the Method of Analysis

The main purpose of this paper is to analyze by the use

of the EPA World Econometric Model $ ^{**} $ the insulation and

transmission mechanisms of macroeconomic disturbances under

flexible exchange rates. An issue of central importance in

this paper is the extent to which monetary and fiscal

policies adopted by one government generate and transmit

disturbances to the rest of the world. Another focus of

concern is the extent to which floating exchange rates

insulates an economy from disturbances in the rest of the

world, including petroleum price increases.

It has been argued by advocates of flexible exchange

rates that the flexible system would insulate the domestic

economy from fluctuation in the world economy

(“insulation” effects), while it would free monetary policy

for using domestic stabilization (policy autonomy), thanks to

The econometric estimations and model simulation were performed by using our own multi-purpose computer system called SIGMA, which was developed by the Economic Research Institute of the EPA in cooperation with Fujitsu Limited.
the function of flexible rates for balancing international

payments (“external balancing” function). Furthermore, it

has been argued that there would be no need for policy

coordination under flexible exchange rates since national

policies would have only national effects (i.e., "bottling-

up" effects). (Please see Kouri 1982.)

In sharp contrast to these arguments in favour of

floating exchange rates, however, the EPA World Econometric

Model shows many channels through which external disturbances

are transmitted (“transmission” effects) despite or because

of the flexibility of exchange rates.

In order to empirically identify possible channels of

international transmission mechanism of economic disturbances

in the present world economy, we need a multi-country model

with exchange rates endogenized. The EPA World Econometric

Model has been constructed exactly for this purpose. It is a

quarterly macroeconometric model, linking nine individual

country models ("Summit" seven plus Australia and Korea) and

six regional models via an international trade linkage sub-

model. Exchange rates of major currencies are endogenized by

the structural balance of payments approach to the

determination of the exchange rate.

Using the revised EPA model of February 1984 (please see

Appendix Table 1 for in-sample dynamic simulation tests), we

have performed “full-link” simulation exercises of the

ordinary dynamic multiplier analysis to identify insulation
and transmission channels. Each model was first run within a

sample period (from the first quarter of 1976 up to the last

quarter of 1981) to produce the standard solution. Then each

model was shocked by changing one exogenous variable (a

policy variable or the oil price) to produce deviations from

the standard solution, that is, multipliers for a change in

an exogenous variable.

This paper examines the abovementioned insulation

effects and transmission mechanisms under floating exchange

rates. Our main interest concerns (1) bottling-up effect,

(2) external balancing effects, (3) insulation effects, and

(4) transmission effects. Our analysis of these effects will

have important but complicated implications for domestic

macroeconomic policies or the alleged policy autonomy as well

as for international macroeconomic coordination. In this

paper, however, such policy issues will not be discussed

explicitly.

This paper is composed of Parts I and II. Part I

contains a background description of the EPA World

Econometric Model, focusing on main differences in

assumptions between a simple model of perfect insulation and

the Mundell-Fleming model on the one hand and the EPA model

on the other. (For a more general description of the EPA

model, please see Amano 1982.) In order to provide a

somewhat concrete understanding of the major differences in

assumptions between the theories and the EPA model, we will

present several simulation exercises in Part I. They include
(1) the feedbacks of domestic prices, import prices and the

exchange rate changes, (2) the J-curve phenomena, (3) the

Phillips curves, (4) the IS-LM curves and (5) the external

financing of the J-curve. (For more detailed explanations of

these and other properties of the EPA Model, please refer to

our separate report of the EPA World Model Group 1984.)

Part II provides analyses of the multipliers of the EPA

World Econometric Model in order to clarify channels for the

insulation from and transmission of various shocks under

floating exchange rates as compared with those under fixed

exchange rates. We will examine simulations for the

following three shocks: a monetary policy shock (Section

III), a fiscal policy shock (Section IV) and an oil shock

(Section V).

The last section provides a very brief concluding remark

of the insulation and transmission mechanisms of floating

exchange rates analyzed through multiplier exercises

performed by using the EPA model.

### I I. The Main Differences in Theoretical Assumptions between Theories and the EPA Model

Before examining the multipliers of the EPA World Econometric Model, let us summarize the main differences between the assumptions of the early advocates of flexible exchange rates and the Mundell-Fleming model on the one hand and of the EPA World Econometric Model on the other.
## (A) A Simple Model

The early advocates bore in mind a simple model where

there are no international capital movements and such a

simple model suggests that the floating exchange rates equate

the trade balance to zero and that with a zero trade balance

there is no transmission effect. Apart from the assumption

of no capital movements between countries to which we will

turn shortly, this simple model implicitly makes the

following two assumptions. Firstly, domestic and foreign

prices are fixed and unaffected by exchange rate changes.

Secondly, any change in the external balance can be

immediately offset by domestic demand without friction.

The simple model without any capital flows yields the

strong conclusion that floating exchange rates fully insulate

an economy from disturbances in the rest of the world. Under

fixed exchange rates, foreign disturbances (contractionary or

expansionary monetary or fiscal policy) are transmitted

through the trade balance and affect real output in the home

economy. In sharp contrast, floating exchange rates cut off

such trade balance linkage, and domestic real output is

completely insulated from the disturbances.

This result of complete insulation, however, is

sensitive to the price and wage assumption.
The EPA World Econometric Model differs from the simple model in its treatments of prices and wages. Domestic and foreign prices are flexible both upwards and downwards rather than fixed, depending upon demand-supply conditions and unit labor costs. At the same time, domestic prices are affected by import prices, as indicated by the elasticities of key domestic prices with respect to import prices, which are estimated at around 0.35 for major countries in the EPA model (Table 1.). While import prices in domestic currency are influenced by an exchange rate movement by nearly a one-to-one ratio, export prices in domestic currency do not fully reflect changes in the exchange rates, and hence the "passing-through" ratio is much smaller than unity even in the long-run (Table 1). The passing-through ratio of export prices from exchange rate changes varies from country to country, but largely reflecting the different size of the country. The larger the size of the country, the lower the passing-through ratio. For example, in West Germany (GE) exporters pass through about 22 percent of the exchange rate changes to export prices in domestic currency, implying that GE export prices in US dollar are altered by about 78 percent of the exchange rate change. In contrast, the passing-through ratio of KR is high, suggesting that export prices in US dollar of a small country like South Korea is dominated by international prices. Such an asymmetric passing-through ratio between imports and exports suggests that the terms of trade change when exchange rates alter.
Table 1 Elasticities: Key Domestic Prices with respect to Import Prices, Export Prices to Import Prices, and Export Prices in Domestic Currency to the Exchange Rate Changes*

Elasticities of key domestic prices with respect to import prices**	Elasticities of export prices with respect to import prices	Elasticities of export prices (in domestic currency) with respect to exchange rate changes
US	0.373(PKINA)	0.053	0.249
JA	0.326(PIIP)	0.112	0.293
GE	0.383(WPI)	0.350	0.216
UK	0.358(WPI)	0.196	0.295
FR	0.213(PA)	0.181	0.218
IT	0.158(PA)	0.320	0.360
CA	0.095(PA)	0.079	0.302
AL	0.139(PA)	0.122	0.100
KR	0.379(PA)	0.069	0.857

(Notes) * Not taken into account wage responses to domestic price changes.

** Notations are as follows :

PIKINA: deflator for nonfarm business inventory stock

PIIP : deflator for inventory stock

WPI : wholesale price index

PA : deflator for absorption

## (Source) The EPA World Econometric Model, February 1984
In order words, changes in exchange rates might insulate

real output of the domestic economy, but domestic prices and

the terms of trade are affected by exchange rate changes. As

a result, price movements in the domestic economy are never

insulated form foreign disturbances with cause changes in

exchange rate. In addition, alterations in the terms of

trade would cause domestic income change, though not

necessarily domestic real output.

Thus, insulation effects should always be discussed by

explicitly identifying which economic variables are

insulated: real output, domestic prices, the terms of trade,

or domestic income, etc.

## (B) J - curve Phenomena

Furthermore, the J-curve phenomenon is generated by

exchange rate changes, whereas the simple model assumed a

zero trade balance compatible with non-existence of the

capital account. The J-curve phenomenon raises a serious

question about the aforementioned external balancing effects

of floating exchange rates. The J-curve phenomenon observed

in the multipliers of the EPA model is different in

definition from the textbook J-curve effects where major

economic variables other than price elasticities of real

export and imports are treated as exogenous. The existence

of the J-curve effects demonstrates that the capital account
or authorities' intervention in the foreign exchange market

can never be neglected when discussing the external balancing

effects of flexible exchange rates.

As an example, Chart 1 shows the J-curve of the trade

balance of Japan (JA) in US dollar which are the simulation

result from giving a shock of 10 percent devaluation to the

Japanese model under the fixed exchange rate regime. Three

lines are separately shown in this chart: The bottom dotted

line indicates the J-curve, with all variables treated as

exogenous except for the current account items, e.g., the

volume of exports and imports, export prices in dollar and

import prices in domestic currencies. This is close to the

textbook J-curve which takes into account only price

elasticities of real exports and imports in the short-run and

long-run. When all domestic variables are treated

endogenous, the J-curve of isolated non-link single country

simulations is the movement of the trade balance influenced

not only by the Marshall-Lerner condition but also by

domestic income and price changes. The J-curve generated by

simulations of the non-link isolated single country model of

Japan lasts 4 quarters, namely, shorter than the textbook J-

curve (6 quarters). When the full-link simulations are run

for the JA model by giving the same 10 percent devaluation

shock, the world demand for JA goods is also stimulated by

the feedback of the increased economic activities in JA, the

J-curve of the full-link simulation tends to be shorter (4

quarters) than the textbook J-curve.
Chart 1 J Curve of the Trade Account of Japan

(Note) * All variables except the current account items are treated as exogenous
There is a high possibility that the J-curve effects

will intensify their own effects. This is because a

depreciation in the exchange rate induced by an expansionary

monetary shock worsens the trade imbalance, which will in

return lead to a further depreciation in the exchange rate.

What mechanisms should work to prevent this sort of exchange

rate trade imbalance spiral?

First, the Marshall-Lerner condition will be

increasingly more satisfied, as time goes on. As shown in

Table 2, the sum of price elasticities of real exports and

imports is much smaller than unity for most countries in the

short-run, but becomes greater than unity in the long-run.

Second, the worsened trade balance causes a decumulation of

external assets held by home residents which will, in turn,

lead to smaller net capital outflow through lower portfolio

demand for foreign bonds (wealth effect), and, hence, to a

appreciation of the exchange rate. Third, the regressive

exchange rate expectations will induce net capital inflows.

A large depreciation of the exchange rate will generate an

expectation of an appreciation of the home currency, thus,

lowering the expected rate of return on foreign bonds and

hence, inducing a net capital inflow.

Table 3 summarizes how the structural balance of

Payments approach works in determining spot exchange rates

(units of domestic currency per US dollar) in the isolated

country models of the EPA World Econometric Model. Figures

in Table 3 which can be obtained from the in-sample dynamic
Table 2 Price and Income Elasticities of Exports and Imports

Exports	Imports
price elasticity	income elasticity	price elasticity	income elasticity
short-run	long-run	short-run	long-run	short-run	long-run	short-run	long-run
US	-0.34*1	-1.23*1	1.18	0.23*1	0.73*1	0.37	1.48
0.32*2	1.06*2	1	-0.18*2	-0.39*2
JA	-0.13	-1.18	1.50	MMFC*3	0.25	0.65	1.30
0.08
MRFC*3	0.27	0.68
0.002	MMGC*3	1.40	0.47	1.18
GE	-0.55	-0.82	0.74	1.11	0.14	0.59	0.16	(C)
1.32	(GNP+M-C)
UK	-0.27	-0.53	0.25	1.06	0.31	0.48	0.91	2.27
FR	-0.15	-0.48	1.35	0.17	0.54	0.46	1.12
IT	-0.19	-0.83	1.31	0.11	0.40	0.28	(I)*
1.38	(C)*
CA	-0.06	-0.19	0.93	0.16	0.90	0.38	0.95	(C)*
0.21	0.53	(I)*
AL	-0.38*1	1.0	0.16	0.76	0.78	1.56	(C)*
0.23*2	0.31	0.62	(I)*
KR	-0.86*1	-2.78*1	3.12	0.07	0.25	1.15
1.10*2	2.89*2

(Notes) 1. $ *^{1} $ stands for the parameter of the domestic price and $ *^{2} $ for the foreign price.

2. $ {}^{*3} $ Japan’s imports are divided into three categories; MMFC stands for the imports of mineral fuels, MRFC for imports of raw materials and food stuffs, and MMGC for the imports of manufactured goods.

3. $ ^{*4} $ The variable for C and I are as follows.

C	I
IT	C+CG+X	IFP+II
CA	C	IFP+IHP+II
AL	C+G+X	IFP+IHP+II
Table3 Contributions of the Current and Capital Account Items to Short-run Adjustments in the Foreign Exchange Market 1)

Country2) Item	US	UK	GE	IT	JA
80 Q2	80 Q2	80 Q4	78 Q1	81 Q2
Exchange Rate Changes3)	9.13	-0.043	0.19	-20.0	14.4
Trade Balance	-2.7	-28.7	-35.4	-5.3	-6.4
Service Account Balance	9.6	8.2	7.9	-0.1	-0.2
Current Account Balance	7.0	-20.4	-26.1	-4.7	-6.6
Capital Account Balance
Long Term	69.4	7.4	14.3	43.3	47.8
Short Term	23.6	41.7	64.1	19.2	47.0
Total	93.0	49.1	78.4	62.5	94.8
Authorities' Intervention	-	71.4	47.7	42.2	11.7
Excess Supply of Foreign Exchange	100.0	100.0	100.0	100.0	100.0
bil.$	bil.$	bil.DM	bil.L	bil.$
(-62.0)	(6.6)	(-43.8)	(5.8)	(-54.9)

(Notes) 1) For the explanations of the table, please see the text.

2) For each country a representative period was chosen in which there was a substantial excess supply of foreign exchange and hence a considerable change in the exchange rate.

3) Units of domestic currency per US dollar.
simulations run to produce the standard solution, reveal

interesting features of the exchange rate determination

process within a given quarter. Through the exchange rate

changes (shown in the top row of the table), credits and

debits of the balance of payments are equated and the foreign

exchange market is cleared for each quarter.

The exchange rate floats in such a way that the

incipient excess supply of foreign exchange which would be

generated at the exchange rate level at the end of the

previous quarter is cleared through changes in the various

balance of payments items induced by the exchange rate

changes within the present quarter. As shown in Table 3,

adjustments of the trade balance to the exchange rate changes

are perverse for all countries and such J-curve of the trade

balance are financed mainly by private capital movements and

authorities' intervention in the foreign exchange market.

For instance, when the exchange rate of DM depreciated by DM

0.2 per US dollar in the fourth quarter of 1980, the current

account as well as the trade account worsened rather than

improved, leading to even a larger excess demand for foreign

exchange in Germany. Net inflows of capital, especially

short-term capital offset substantial part of such perverse

movement of the trade account as well as the initial excess

demand for foreign exchange. It is noteworthy that

authorities intervention plays an important role of short-run

adjustments in the balance of payments under the present

managed floating regime.
How does the J-curve phenomenon affect the insulation and transmission mechanisms of floating exchange rates? To what extent will the insulation and transmission mechanisms be influenced by the aforementioned possibility of an “exchange rate – J-curve spiral”?

(C) Introducing International Capital Movements into a Model

## (i) A Case for full insulation even under international capital movements

In the simple model with the small country assumption, a

pure monetary shock abroad can be insulated from the domestic

economy through an appreciation of exchange rates to the

extent of the differential in the price level between abroad

and at home, thus offsetting external inflation and keeping

real output, prices, and the terms of trade unchanged. In

other words, floating exchange rates can fully insulate the

domestic economy from a pure monetary shock abroad.

A question then arises whether floating exchange rates

never insulate the domestic economy from a monetary shock

whenever international capital moves between countries.

There is only one case of the full insulation even given

international capital movement. Only when a foreign shock

purely is monetary, i.e., overall price changes, can such a

monetary shock be fully insulated by floating exchange rates?

This is simply because, for instance, a 1 percent rise in the
tempo of increases in the foreign money supply will raise

the rate of foreign price inflation by 1 percent and foreign

interest rates by 1 percentage point and the foreign currency

will depreciate 1 percent. This special assumption both of

the full flexibility of wages and prices and of the perfect

substitution between domestic and foreign bonds would allow

the domestic authorities to enjoy the policy autonomy

assisted by full insulation from the effects of foreign

monetary disturbances.

Or when the world price level rises, the domestic

currency appreciates proportionately to the rise in overall

foreign prices. This domestic currency appreciation

insulates the domestic output from the international

inflation or an international money supply shock.

It is, thus, often argued that floating exchange rates

can insulate a domestic economy from pure monetary or overall

price shocks abroad but that floating rates cannot insulate a

home economy from real shocks which involve exogenous

relative price changes among different classes of traded

goods like an oil crisis. In other words, it will depend

upon the nature of foreign shocks, monetary or real, whether

floating exchange rates can insulate domestic economies.
In reality, however, we will very seldom experience such

“pure” monetary or overall world inflation shocks.

Therefore, the mechanism of insulation against a pure

monetary shock cannot be stressed strongly as to argue for

floating exchange rates.

The EPA model does not show such results of full

insulation when a pure monetary shock is given to the U.S.

model. Under a pure monetary shock, all kinds of prices in

the United States may not rise proportionately, leading to

relative price changes and exerting real impacts on the U.S.

economy and the rest of the world.

## (ii) The Mundell-Fleming Model

More than 20 years ago, the Mundell-Fleming model

drastically changed the theories of bottling-up and

insulation effects by introducing both perfect capital

mobility and perfect substitution between home and foreign

bonds (Fleming 1962; Mundell 1964 & 1968). The model

demonstrated the possibility that an expansionary monetary

policy at home would be fully bottled-up through a floating

down of the home currency which would lead to an increase in

the external surplus in real terms. In other words,

expansionary monetary policy is expansionary at home by

increasing effective demand for the domestic real output, but

would be contractionary in foreign countries because of a

decline in their external surplus in real terms (beggaring-

thy-neighbor effects). Thus, floating exchange rates would
transmit domestic monetary disturbance to foreign countries

in a opposite way, and do not insulate foreign economies from

domestic disturbances. On the contrary, expansionary fiscal

policy is completely nullified by an appreciation of exchange

rates, fully transmitting such an expansion in home demand to

foreign countries in an expansive way. Hence, floating

exchange rates would not have any insulation mechanism once

international capital moves freely between countries, but,

instead always transmit disturbances in a contractive or

expansive way, depending crucially upon the nature of the

disturbance, that is, whether the macroeconomic policy is a

monetary or fiscal shock.

An interesting question is how the multipliers of the

EPA model throw light on this issue. Will our empirical

Results be similar to those expected from the abovementioned

Mundell-Fleming model? If not similar, what causes the

differences in insulation and transmission effects between

the Mundell-Fleming model and the EPA model?

It will be anticipated that dynamic rather than static

exchange rate expectations, the effect of exchange rate

changes on domestic prices and wages and the J-curve

phenomenon, none of which were assumed existent in the

Mundell-Fleming model, will have important implications for

the external financing function, insulation effects and

transmission mechanisms. Since the EPA model explicitly

treats dynamic exchange rate expectations, the effect of