NOILISOd IN3WNU3A09 13N (dONC)

aur - xur = air

SYNVG ASNOW 11S0d30 NO SWIV1D S3ILIYOHINY AYVLANOW (aur)

gunor + unor + sur + wr + HLOF - dONT - SVANC -

S3AN3SIA 33XA HOA ONIATOS - 133HS JINVIVE WNVE TWYIN3D (dur)

"229

“129

“029

S3TLTYOHLNY ABVL3INON “IIIT

- 821 -


-54-

Canada and the United States (equation 93). Any persistent interest
differential between the two countries brings about large movements in
the Canadian/U.S. bilateral exchange rate. Because the two countries
are so closely linked by trade, these exchange rate movements have large
impacts on Canadian real income. We assume the Canadian authorities
attempt to minimize these effects by using monetary policy to control
interest rates. This assumption is also adopted for the monetary,
exchange rate, and supply side simulations, except in the Canadian
monetary contraction.

The second exercise presented is a one hundred basis point
inorease in the home country treasury bill rate. In the country in
which the policy change occurs, the nominal money supply is endogenized
to be consistent with the higher level of interest rates. (That is, the
authorities are assumed to target the nominal interest rate.) For the
remaining four countries the money supply remains exogenous. The
monetary contraction is calculated in terms of the interest rate so as
to be comparable across countries -- since different aggregates are used
as targets, equal percentage reductions in the money supply would not be
comparable.

The third series of simulations is an exogenous five percent
appreciation of the foreign currency vis-a-vis the dollar. This
simulation is designed to highlight the transmission effects resulting
from movements in exchange rates. The exercise is somewhat artificial,

in that the exchange rate is normally an endogenous variable in the MCM.


98/7) :Q31VWIISA <> = GON ba) 206 StS TB, geet ee

(6°S) S55" = OWN 820°2 = SHT NV3N 80" =
(2200°T) (L20s"
CCCT- \OTIGIIN/CT- JOTIdIN)/OTIGIIN/OTIAdIN 1901 * 629995" + sb x 66280" -
(2T@262") (26£05°2) (9929" oT)
2B % 620520" - TB x 616290" - (OTIGISIN/OTIGdIN * OddIIGNISO] x 2Zzze° +
- (Tr69°T) (29z98°T)
(MIGNIINI9O1 * THSE"Z + 6SE°2ZT- =  (LVNOASXN - XO9dVIN - BOATASKN)SIOT

(YSN) USHLO. -S1dI393% 3WOINT INSWLSIANI 193YI0 (BOAGAS>N)

s8/> joaiwurisa <> = GON _>d Z296T on 1. Ze6T tapNyy
(2°) 609° = OHY O°Z = SH] NVBH £ST° = “Yas
(2z8to"s) (999ST"Z)
CCCT- OTIGIIN/( T- JOTIGdIN)/OTIGIAN/OTIGdIN 9071 * THBE"Z + £0 * 660662" -
( 266929") (olst6*2) ( 9082")
2B x £55020" - TO x Z2Z892T° - (OTIGS4N/OTIGdAN x WdIDIGNISOT * B2ZZHy" +
(9s60°S) (29z6s"s)
(MIGNJINISO] * ose5S°S + IL9T*6s- = CXHSdVIN ~ BHAGASXN)I07

CVSN) SNTUMLIVINNVW--S1dI393Y SWOINT IN3WLS3ANI 193810 (OWAGASXN)

§8/> <0R1VWIISI <b = od 2861 OL wD, 2e6T TJONVe
(2°S) 269° = OHY 926°T = SHT want oT = was sud
(1s96g"T)
(d3dXVS/dIdNYS 1907 * ITOSd * 220226" +
(toz2t"¢) (960262")
CCT~ )d3dXVS/d3dXVS 1901 * 622ZAGN * TETE65" + £B * 996850" -
(s98s"T) (2se2e") (66st)
2B x 959880" - TB x BB49TO" - (OTIGIIN/OTIAdIN * ddIIIGNISO] * £04696" +
(60%T6°2) (16800°£)
(MIGNIINISO] * 92E29°6 + TET6°Sb- = (Xd9dV¥IN - BdAAGASKN)NOT

CVSN) wna 10w1ad S1dT 3934 SHOONI ‘INSHIS3ANT ‘193ur0 (edagasxnd

$8/> :QR1VHIISa TZ = SON 2 ze6r ote Te a oN

(8°9) 299° = OHY 282°2 = SHI NV3H 20°
( T8266") (L2g9"9)
(9XN)901 * B9ZzEz° + (OT4dNDIN SOT * 890875" +
(62686"¢) £969°%T) (2809°0T)
COTI3N/OTMIIdINISON * HSZ9TZ" + (d@9dN * 00T)907 x 21z6eo°t + 22%16°S- = (AOSXN)9071

AMVLITIN GNY 3HOINT IN3HLS3ANI QNIGNISX3 S1dI399Y 39TAURS (nose)

TELL

"Ld

“Tak

OLL

‘SUSASNVUL ONY S3IIAU3S 40 SLUOdX] “a

~ £sT -

Irn


2°)
2@3xId30D * EF229C| * £86000"

(19)
48 % 99500°

= THHIdd

00% * ((THI)907)130

(THHId3) —-*26

39V.INIIN.

G19 + TWD = ZWD

2H = A1ddNS ABNOH (2H) “16
QNo + aso = aLo
SINZGISIY AG G13H S1ISOdId BWIL (G19) “06
4add) + YN3D - THI = Gadd
‘SIN30IS3Y AG 013H ‘S11s0d30 aNvHaG (aaa) “68
8Z4/T ?03LVWILS3 09 = GON bo) ster ote 7) o96t_ ?39ONVa
2S" = MG WN = SH1T NV3N 400° osud
<£°T) (2"Ts)
(sun - S49) % TOB000" + —YSNAMNO/YSNAdNOD x 9TS6ZT" +
“2) (2st)
= £28£$0"- = VSNAMNO/ONO

(Z"2) (1
<b x 166010" - 2b * 8£2>00°

S1S0d30 39TLON (QN3)

“98

-2-


-25-

variables: personal disposable income, and the real interest rate,
which is scaled by real wealth. Permanent income is approximated by a
distributed lag on past disposable income. In the German equation
(336, Appendix 2), GRS is the nominal short-term interest rate, and
GPEXP is the expected inflation rate (a distributed lag on past
inflation). GNWR is real net wealth, which is the cumulation of
disposable income less consumption.

This consumption function is specified in logarithmic form.
In order for the average propensity to consume out of permanent income
to be a constant in this specification, it is necessary that the
long-run elasticity of income with respect to income be unity. This
condition is closely approximated in the MCM; the long-run elasticities
in Germany, Japan, the U.K., and the U.S. are -976, 1.12, 1.0, and 1.09,
respectively.

In all of the non-U.S. models, private fixed investment is
broken down into residential and non-residential components. The U.S.
model further divides nonresidential investment into producers! durables
and producers' structures. Equation (2) in the theoretical model of
Table 1 provides the basic point of departure for the investment
equations. One innovation in the current MCM is a new measure of the
user cost of capital. The formula used in the calculation is:

uc = [4 -T+z-x)(R+D)]/0 - 7)

Tthe U.K. consumption function is estimated with an error-correction
specification which imposes the long-run elasticity; the Canadian
equation is estimated in levels.


(T-)1V8NI33 + $/IVEUNIa = IWEINdI3

ANNOIIV IN3HYND SALLVINNND ( TvEUNII3)

WIVGUNDT + ANVULW3 - AOSW3 - AASHA - ASW - ANVULX3 + AOSX3 + AASK3 + ASX3 = TWEUNIa

BONVIVE INNOIDV INaWUND (1v8UNDa)

IINSSW3 - INSSX3 = INX13N3

S$39Iud 226T-( SISV@ VIN) S3IIAU3S GNVY SGOO09 40 ‘Siuoaxa 43N CINXL3N3)

- ss -

ASOW] - ASSX]3 = 1vES9a

SBOTAURS | ‘ONY ‘saoos No 3ONVIVE (vasoa)

ASW] - ASX3 = W@s3

S39TAN3S NO FONvIva (tvasa)

ASWa - ASX = 1V80a

ONvIva 3aveL (qva93)

“652

“852

“£52

“952

“gz

“92



2U39XI + ((ASXR/ATOOXA - T)*xANDXAT %* (ADXI/ATOOXI 1**ZZ1I0d0 )/AOXI =

S301ud 2261 - SlvodXa SG009 -y"

W101 (9x3)

?031VWILS3 = 8S = GON ob set ote £0 T96T_ 2FONVU
e°2 = MG WN = SH1T NVSN ITO" sud

(ot) ce) (van)
(CCT )1337718431907)730 * 869550" + £b x 624500" - 2b x 692200" -

(eT) (7)

Tb x 200" + TZ2z200°- =  (((POVASXI - ATOSX3) + Y33/AL3X)907)790 - ((A9XI)907)71390

CALTINSOI-ISvnb) SISva dod - Sluoaxa $009 *N°N W.LOL (ASX3)

AMX + ALIXT = ALIX

csn $) SISV@ LOG - Si¥Odx3 SG009 "yn Wio1 (ALax)

AgaX + ATAX + ADIX + AN3X = ALIXF

(°S°N $) S3TwINNOD WOH W3H1O On ‘S1¥Odxa ‘$0009 wea (AL3x3)

L/T_ Sagtvurisa n°s = GON Td O86T ot 1 Ler S3ONVE
(WN) ST2"- = OHY WN = SHT NV3N 6T0Z° = ‘Y°d sud

(9)
AQIX * L2Z50°T = AFSW

c S'N $) ANVWYID OL SLYOdX3 SG009 *¥°N (A93X)

29/5 (O3LWHTISa zz = > O86T OL TD SZ6T ?39NVE
<@°T = MG WN = SH NV3N Serb: = °Ya'S 66686" = BSUD

(izség°~) (ossse°2) (T90ze
£D * 6966TT" - 2b £06285" + Ib x bbIST’ +

(os9lo°e) (66E2°2) (£2269°2)
(T-)833/(T-)100d0 * BOOSes" +  Y33/1I0dO x 2280/2" + £0T9S9° = BSAVO/109X3/0SZ « A109X3

CALTANGQI- Tsvn) ana - ‘S1yoaxa 710° (ar0axa)

“TIZ

“Oz

602

*80Z

“202

“902

‘$0009 40 S1uOdx3 “@°II'3


Abstract

The FRB Multicountry Model (MCM) is a linked system of five quarterly
national macroeconometric models of the United States, Canada, Germany,
Japan, and the United Kingdom. The MCM emphasizes international
linkages, and has equations for trade in goods and services, investment
income flows, and exchange rates. This paper documents the current
version of the MCM. The paper describes the theoretical structure of
the model, and presents the empirical estimation results. The paper
also clescribes a series of simulations of fiscal and monetary policy
scenarios and external shocks. A complete listing of the model is given

in an appendix.


CANSdN7U9D) ¥% IGL1GD x SZ°O - (T-)9GLTHD = IG17KD

SUNSTIUOS NO SHIVIO 403uI0 Wu31-! NOT Wau | 10 WIOLS (IGLTHD) «HL

ASX + ASXI = ASOXD

S33IAU3S GNV SGOOS 40 S1YOdX3 (ASSXI) “£2

AASXI + AOSXD = ASXI

W101 - SISVG dOG - SAIIANIS 40 SLYOdX3 (ASX) “22

se/> 'alVWILSa 26 = GON IB £86T OL ID 096T ee
(2"2) 922° = OWN TI*- = SHI NV3N 2sT° = "U'3a"S 26° =
(90625°8) (g2zte"9) (y>oTs'8)
(dNSNISOT * Z6see"T + (GNSdN 1901 * 222956" + L09%°ST- = (ANVHLXI)901

‘$1d1393a ‘UagSNVEL Wwio1 CANWELXO) “TZ

900°0 *HNS.
$<e°2T Too"o

dvis-1 143099V1 owl

S8/> :G31VWIIS3 2b = GON 8 2961 O1 TB IZ6T *39NVY
(6°) 6S" = OHN 229° = SHI NVBN $2S° = “Y°3°S G6° = BSYD
(12Z602°2)
CCCLId149 - €1d949) % CIDTUN) * T439099V17 + = B9ZEZ*Z- == AQNASHD - AGNASXD

S1dT393% 3MOINT INBHLSANI 193YIO-NON (AGNASXD) “OL

S8/> ong ynztSa IS = GON 8 2961 O1 TD O46T *39NVY
s9T° = bBSuD

(9'T) 612" = = SHI NV3H 600° = “4°3°S
(99222°2) (9s9zzs")
Non * S@9000° + %T6STO"- =  (Y39/dNOdN * IOLTYD)/AGASKI

$1d13934 ‘BWOONT | "INSHLS3ANI 493uIG (AGASX3) 69

S8/> ‘G31VWIIS3 88 = GON Tb £96T OL 2b 536t_ ?39NVa
886°T = MO %0S°T = SHI NV3N £2° = “US'S sud,
(90ST2"T)
(9X3 )901 * bbLToE" +
(99Z5TS") 6%90S°T) 16374 7ea 9)
(dN9d9/839/dN 1901 * S892" +  (dNONISOT « 206288" + 922T6°S- =  (dNSd3/AOSXI)901

S391AN3S waHLO JO SLYOdX3 (AOSX3) 89

SUAASNVYL ONY S39IAU3S 40 SLYOdX3 “O° II"D

-et-


OANO

HONS

NOMLO

1 2 3 4 5 6 7 8
(1) U.S. MONETARY SHOCK
U.S. GNP (%) 70.4 -1.0 -1.4 -1.5 -1.5 -1.4 -1.2 -1.
U.S. Prices (%) 70.1 -0.2 -0.6 -1.0 -1.5 -2.1 -2.6 -3
Foreign GNP (%).. -0.0 -0.0 -0.0 0.1 0.2 0.3 0.4 0.
Foreign Prices (%)... 0.1 0.1 0.1 0.1 0.1 0.0 0.0
(2) JAPANESE MONETARY SHOCK
Japanese GNP (%)... 70.6 -1.5 -2.3 -2.9 -3.4 -3.7 -3.9 -4.
Japanese Prices (% -0.1 -0.3 -0.6 -1.1 -1.7 -2.3 -3.0 -3.
U.S. GNP (%).... 0.0 -0.0 -0.1 -0.1 -0.1 -0.1 -0.1 -0.
U.S. Prices (%). 0.0 0.0 0.0 0.0 -0.0 -0.1 -0.1 -0.
(3) GERMAN MONETARY SHOCK
German GNP (%) 70.3 -0.7 -0.9 -0.9 -0.8 -0.8 -0.8 -0.
German Prices (%).. 70.5 -0.7 -0.9 -1.2 -1.6 -2.0 -2.4 -2.
U.S. GNP (%)......- 0.0 0.0 O.1 0.1 0.1 0.1 0.0 0.
U.S. Prices (%) 0.0 0.1 0.1 0.1 0.1 0.2 0.2 0.
(4) JOINT MONETARY SHOCK
U.S. GNP (%)... -0.4 9 3 1.5 71.4 -1.2  -1.
U.S. Prices (%).... -0.0 1 4 71.3 -1.9 -2.5 -3.
Foreign GNP (%)....... -0.3 6 9 -0.9 -0.7 -0.5 -0.
Foreign Prices (%).... 0.0 0 2 -0.6 -0.9 -1.3 -1.

Notes to Table:

(1) Sustained 100 basis point increase in U.S. treasury bill rate.

(2) Sustained 100 basis point increase in Japanese treasury bill rate..
(3) Sustained 100 basis point increase in German treasury bill rate.
(4) Sustained 100 basis point increase in 5-Country treasury bill rate.

Amounts shown are percentage deviations from the baseline path.

Foreign GNP and Price variables are non-U.S. 4-country averages using

multilateral trade weights and constant exchange rate conversion factors.

QAvEH


( 280°O + OOT/dxX3dr - (OOT/IHUF) * CABLE - T)) * (s0°O - T) = YONr

WWIINSGISHY - IVildva JO 1809 Y3SN Cuonr)

COAMLE = TIZC9OT'O + OOT/dxadr - (OOT/ THC) * (IAULE - T)) % CUNLNVUSP - d3Gar x JAWLE - T) = yNONr

WILN3GISJYNON - TW1Id¥D 40 1S09 ¥3Sn CaNaA)

(9°S2 % COOT/TEP) % CIAMLE - TIIZCCS*E2 % COOT/TUF) * CCIAMLE - T)-))dxE - T) = agaqoar

40 NOILVI9gvdI0 40 Alva (d309a")

o/TIr + (T-0IDr = Dr

ANBHLS3ANI AYOLN3ANI 4O WO01S cpr d

udir + Ndr = dr

WIOLS WIIdVI 3LVATYd SSOYS (dw)

S*Oxx(%/ 2H090T'O - T) % %/UNdSIS + (4/24090T"O ~ T) % CT-)UNd IT = UNdE

WILNI0IS3

WIOLS W1IdV JLVAIYd SSOUS (UNO)
S°Ox* (4/292580°0 - T) % 6/addIF + (4/29280°0 - T) % (T-)'8dwr = Ydue

IWIIN3OISIY - YIOLS WA1IdVI JLVAIYd SSOUS (Ydw)

(CLOddNSP/dNOF )9071)730 = ((NIF)901)730

aLVY NOILVZITLIN ALIovdv) ( nor)

"669

*L69

"999

“S69

“£69

"269

SNOOLS. W1IdVI Twa ONY ALIDVdvD “°AI'e

~ £20 -


AGNASX] + AGASX3 = AASX3

SLdT3938 3 3WOONT AN3WLS3ANI ( AASX3)

S8/> {OUYHLIsa OL = GON ob zeet Oh 2 S961 :3ONVe
C£°9T) 216" = ON 6°- = SHTNVBH 990° bsa3
(Ceges*0T) (96E°TT)
(14AdN949)907 % ZSTHO"T + $82Eb°L- = (AdNVYLX3)907

68s°s
dvis-1 143039v7 ov

s8/> ong tyHtis3 22 = GON 9D 2e6T Oe 18 geet ?3ONVa
(92) Ly = TST" = SH1 NV3N STO* sud
(9928°2)
COOT/( T)MO4SUSa) * TIIOISV] + 990290" =  d943/AONASXI

$1dI393X 3WOINT IN3WLS3ANT

S8/> :Q31VWILS3 42 = GON

3NIG NON ( AGNASX3)

© 206t ot. st eet ?3ONVY
= Su:

(s°9) Te" = OHY 80E"2- = SHT NaN e2t" 3
(66022°2) (96296 *)
(M94NNIJZI901 * 66560°T - 2zZTOL*- = ((M94833/94dN9d43 % 3011939 )/AGASX] 907

S1d1393u 3WOONT “INSHLSJANI 493410 (AGASKI)

S8/> :G31VWIIS3 99 =

‘g0N
SS2°T = MO 22S°T = SH NV3W

CCCI dN9d3/CT M483

(880T°9T)
(ML4dN9S3)901 x 9Ebb9°

-W-

£69°0 ?NNS
459°O 26T'O (T-)
6T9'T S6°0 10o-)

dvis-1 133039v7 ov

$8 2861 Ol £b 996T *3ONVE
60° = "ya's ST@" = bBsyd

a/( I )M4d43)901) * T43099V1 +
(68%b2°2)
+ s82089°- = (dN9d3/A0SX3 1901

S3ITAUIS Y3HLO 40 SLYOdXI ( AOSK3)

“922

“g22z

“o2z

“£22

"222

‘SMI4ISNVUL ONY S39IANIS 40 SLYOdX3 “O°II'S


-70-

CANADIAN FISCAL SHOCK

Sustained increase in government purchases equal to 1% of GNP

1 2 3 4 5 6 7 8
UNITED STATES
Real GNP (%) 0.2 0.2 0.2 0.1 0.0 0.0 -0.0 -0.0
Price Level (%). 0.0 0.1 0.1 0.2 «0.3 0.4 0.4 0.5
Int. Rate (ST)(+/-)........ 0.2 0.2 0.3 0.3 0.3 0.4 #04 0.5
Exch. Rate (FX/US$)(%)..... 0.1 0.2 0.3 0.5 0.7 1.0 1.3 1.6
Current Bal. (USS$,B)(+/-).. 2.8 3.1 3.1 3.0 2.5 2.3 1.9 1.3
CANADA
Real GNP (%)......--..ee eee 1.2 1.3 1.2 1.1 1.0 1.0 1.0 1.0
Price Level (%)....... 0.2 0.6 1.2 2.1 3.1 4.3 5.7 7.1
Int. Rate (ST)(+/-)........ 0.4 0.6 0.9 11 1.3 1.5 1.6 1.8
Exch. Rate (US$/C$)(%)..... 0.3 0.2 3 -1.0 -2.1 -3.2 -4.4 -5.7
Currer.t Bal. (US$,B)(+/-).. -1.1 -1.3 +4 -1.6 -2.0 -2.3 -2.7 -3.0
GERMANY
Real GNP (%)........-eeeeee 0.1 0.1 0.1 0.1 0.0 0.0 -0.0 -0.0
Price Level (%) 0.0 0.1 0.1 0.2 «0.2 0.3 0.3 0.4
Int. Rate (ST)(+/-)... 0.1 0.1 0.1 0.1 0.1 0.2 0.2 0.3
Exch. Rate (US$/DM)(%) -0.2 -0.4 -0.4 -0.4 -0.4 -0.5 -0.5 -0.7
Current Bal. (USS$,B)(+/-).. 0.1 0.2 0.4 0.3 «40.3 0.4 0.4 0.3
JAPAN
Real GNP (%) 0.1 0.2 0.2 0.2 0.2 0.2 0.2 0.3
Price Level (%).... 0.0 0.0 O.1 0.1 0.1 0.2 0.2 0.3
Int. Rate (ST)(+/-) 0.0 0.1 0.1 0.1 0.1 0.1 0.1 0.1
Exch. Rate (US$/Y)(%). -0.3  -0.3 -0.4 -0.4 -0.5 -0.6 -0.7 -0.9
Current Bal. (US$,B)(+/-).. 0.3 0.7 0.9 1.0 1.3 1.6 2.0 2.5
UNITED KINGDOM
Real GDP (%)..........e eee 0.0 0.0 0.1 #0.0 0.0 0.0 -0.0 -0.0
Price Level (%) 0.0 0.1 0.1 0.2 0.2 0.3 0.4 0.5
Int. Rate (ST)(+/-).. 0.0 0.0 0.1 0.1 0.1 0.2 0.2 0.3
Exch. Rate (US$/PS)(%) -. 70.2 -0.3 -0.3 -0.4 -0.4 -0.6 -0.7 -0.9
Current Bal. (US$,B)(+/-).. 0.2 0.4 0.6 0.7 0.7 0.8 0.9 1.1

NOTE: Amounts shown are deviations from the baseline path
(%) = percentage deviation from baseline
(+/-) = absolute deviation from baseline


ry
<
a

206°T ITO (£-)
206°T 262°0 (2-)
206°T 8rb"0 a)
206°T £85°0 (o-)

dvis-1 143039V7 v1

8/> ong 2tyarisa OZ = GON >d 286T ot. 18 S96T_ 2 SEN

(6°E) bob*- = ZOHY (2°27) 16s" T= OHY 2b" = SHT NV3W Tb0° = “Y'3'S

COCLINIA * €°0 + CIIOTMINDAN * £°0)90T) * T43099V7 +

(6999E°T) (1sst 9) (L69TT*T)
COTI9NI907 x zSe9Ez" ~ (anodni907 x 50Lz0°T + 696bE°S- = (9¥XNIDOT

3NIVA LINN 1u0dKa TvanLinoIuoy Covxan) ‘ze

58/5 {aaiyurisa TZ = GON +b 2e6r a 1 g96t_ 239NVU

(U'%T) 698" = OHY 282° = SHT NV3W ZITO’ = osu)
(1se52°¢) (2219872)
CCT-)OTI9NISOT * ZTE9ZZ" - (OTI3NISOI x SZEZ0z"
(4229°s2) (Z0z52°T) (£9296 ° gs)
COTM49d4N 1901 * 256566" +  (WOIS4Id)901 x £58090" +  9069°2- =  (14NOWdN)907

3NWA LINN LYOdNI TIO-NON (14NOWdN) “61S

120°0 059°0 Wns

SST"O £00°0 £02°8T 09: (s-)
Ze5°0 £00°0 £02°8T s6 Q-)
s48°T 810'O £02°ST os a)
(o-)

og" 2%0°0 £02°8T 590°0
dvis-1 243039V7 Avis-1 143099V7 ova

S8/> ALWWILSS @f = 2b £e6T 1, he S260 239NVe
(2°s) £° = OHY S06" = SHI NvW £00" = = BSUS
(S0THS*T) (209S2°T) (62%20°T)
<b x ggztooTM - 2b * 262z00° - TB x @ZTTOO"  -
(142680° )
CNND/T) % 025900" - — (((1)34IMdNI9O1) * 249099V1 + —((C1)MN)901) x T43099v7 +

Colos"22)
TE@TO"T- = (CCT) 14NOHANISO1 * S*O + (T4NDWdNI9OT * S°0) % T4NOWIMN - (4N)907

¥YO1V1430 NOIiddoSay (dn) ‘ete

‘S391Ud

Su

Adans GNV S39IUYd “AI*

- 297 =


-16-

where r is the reserve/deposit ratio of commercial banks, with
(dr/dig) < 0. An increase in real income produces an increase in the
demand for real balances which, in the absence of any monetary
accommodation, leads to an increase in nominal interest rates giving
rise to an upward sloping LM schedule. However, because the MCM
includes a banking sector, the increase in money demand is partly
acecmmodated by a reduction in bank reserves. This partial
acecmmodation tends to lower the slope of the LM schedule relative to
the case of no monetary accommodation.

For the purposes of this comparative static exercise, the
supply side of the model is represented by equations (13)-(14) as

Y= F(K, Ly Mj) - (Pi E/Pq)Mi-

Each argument of the production function is assumed to be at its optimal
value as determined by equations (15), (17), and (19)-(21). In (i,
Y)-space, the supply side of the model is represented by a vertical
line, as in Figure 1.

Finally, the international capital market is represented by
the horizontal line in Figure 1, where domestic interest rates are equal
to foreign interest rates. This equalization of interest rates stems
from the assumption of perfect capital mobility. Substitution of

equa‘sion (22) into (23) yields

Gm), - i,’) = (In E - ing) + (1/y)(P® - P**),


S8/> iG31LVWIISI 26 = GON % Z296T ote 20 2Z6T *3pNvy

(9°S) 929° = OHY Sb6° = SHIT NV3H £Z0° = “¥°3°S =
(196197)
(1- aas9xXdde * SOLETE +
(£Ts09°2) (1922e°2) (8626°T) (29206°T)
MAASXddr * SSb>S" + T2240 * 628660" + ITb4d * £02650" +  £££9620° = (CGANSHdr 1907

CS°1 $) X30NI 3NTWA LINN LUOdWT CaAnoHdr) “929

s8/> :a1VWILS3 = GON TB £86T OL 5 32ete ?3ONVE
(g°T) 22T°- = ZOHY (8) ZOT°T = OHA STO" 2 SH eee Tso" = ‘w'a’s sud
(6Z5095°) CTs60es:) (6S0L5°T)
£B x 612Z200° - 2b x 266200" - 1b x OZs600° -
(68560°T) (21s9e"s)
622650" - = (( T- MLAXdSEF/CT-) TAP x (T-WOddT 901 x ¥BOZSE" - (WOddr)907 = (ANSXdr 907

X3QNI 3N1VA LINN 1YOdx3 (ANSXdI) “S729

$8/> i031VWIIS3 14 = GON 2B seer ot b3) scee ?39NVa
(9°06) 96° = OHY 05° = SHIT NVBN 6TO" = as = bSu2
(sTs0°9) ees: )
4WOGdr)901 * ZZ8ST°T + S60T*- = (IdMdl 907

X30NI 397d Sa 100M Ciena “629

zto0"o sos"O
SLT°T 200°0 vN Ww
T6s"2 £00°0O vN VN
Ob2"s £00°0 900"< oT2"0
952° 00°0 200°S szz°o

AVLS-1 -243095V1 AVis-1 1430239¥1 vl

58/5 aL VWILS3 92 = GON 4d zor 3 1b ecest ?JONVa
T9T°T = MG S9S° = SHT NV3H 900° = = bsu2
(9sT 62) (968TZ2*) (95%929°) £32200) ) (996%b°T)
9TZbe*s - £8 * 084000" + 20% £80200" + Td x 90-386658°2 + NOT x 259600" -
CCCOCERINING 3ST3 SO - 3000000°T N3HL O 37 (IIYNING JI ) + T1901 * (1)d~ 901) x 2939099V1 +
(26829°2) (zseseb")
CTIONNd? 1907 % 022020" +  (13f/22110d0)901 * STZ400" + CCCIIMP 3901) % T43099V1 = (dr s07

4YOLV1490 NOIiddOSEY (di) “£29

$39Tdd “VAI'e

ONV S39IUd “AIS

- 62T -


OOT * (T - bxx((T-MN/MN)) = MHOdN
BLVY TWANNY--S39VM NI JONVHD J3OVINIIUSd (MHIdN) “OSE
S8/> 2Q31VHIIS3 82 = GON £B S86T OL oD H96T *3ONVY
(6°S) BTy'- = ZOHY (6°6) 2G0°T = OHY 624S°T = SHT NV3N 26S° = ‘Y°3°S £58" = BSUD
(9T99°9) (.959T0"6)
NON * Tos9SS°  - TS6TO°S =  dX3dN - (%-IMN/OOT * ((>-IMN - MN)

(8OLIIS SSINISNG 3LVAINd WYV4-NON) 3LVY 39M (MN) “668

41N/(37N - 47M) * *OOT = NON

AN3DY3d--3LVA INIWAOTdNINN (NNN) “868

oeT/NNN x 47n = NIN

‘SU3NUOM G3A07dW3NN.

665°0 ?Wns
<II'o T00"0- (-)
S6T"O £00°0 (9-3
02970 210°0 (s-)
L99°T 220°0 (3
658°2 £90°0 (s-)
809°> 220°0 (2)
88Z"> 20T'O a)
610" Zs1°0 (o-)

dvis-1  143099V1 ov

S8/> :Q3LVWILS3 82 = GON  £b S86T OL TD S96T :3ONVY
(6°12) S26" = OHY 9 666° = BSYD

90°9 = SHI NV3H 00° = “Yas
(96295°2) (9208T°9)
BWIL * GSZZ00° +  (((1)dOdN/(1)31N)I901) * T43099V1 + £686>°E = (dOdN747NI9O1

SNOITTIN--39404 YOaVT (41N) = *9%8

- 20 -


APN - AONX - AINX - AINX - ALNX = AYNK

(WSN = “S°N § IN3YUND) GIYOM 4O 1S3Y O1 S1OdXS SGOGS “S"N (AUNK) “026

98s'T WS
009°2 SoI'O (9-3
008"2 £o2°0 (s-)
002"< 962°0 (o-)
OOT"> 962°0 (£-)
00s "9 852°0 (2-)
000°2 OST'O (1-3
000°0 200°0 (o-)

ivis-1 143039V1 ovT

28/2 ‘+G31VWILSI 95 = GON 8 SZ6T OL TD 2961 *39NVY
CWND 695° = OHY “2°S £26" = BSUD

VN = SHI NV3H 90° = °Y
(oz°2)
COCCLITAC % CLIANOXdlI/CTISXdMON SOT) * T430I9NVT +  (dIMONINO] * ITE80°2 +
ust) (£°2) (9ST") (g°2T)
=D * £16860" - 2B x SL/EZ2T° - 1B * $6096T° - 609T6°2 = ({13P * ANOXdP)/AUCX 1907

(VSN - °S'N $ IN3BYNI) ATHOM-4O-1S3Y O1 S1YOdX3 S009 asanvevr (AUrX) OTe

- Set -


(£-)d9 % (T + 00T7dx3d9) = TdD

Axoug 1331 397d 031934x3 GVIHV-waLUvND-3NO (Td9)

(Qpez9°0 } TT OL

=) WAS/((% = PIdNOD/U (> - FIGNDdD - ( FIdNDdD) * (F-)eZB"O = O fIT- = FINNS x OOT = dxdd9

BOVUGAV ONTAOM - SNOLLV1930X3 AUVNOLLVIANI (dX3d9)

(WOGYVHSS/( CINSSNdS 190] * (WOGYVHSS - T) - (d9)901)Idxa = WOddS

(SIMONI INOHLIM) NOTLd¥OSEY 9TLS3MOG wos OLVIa¥G (HOGdS)

(1 139/2Z110d0 901 * STTS88°0/(STT888"0 - T) - STT@98°0/( INSONd)901)dx3 = TIONWdD

SAWOdNI TIO-NON UOd XJONI 3OTUd (-1TONNdS)

00% * ((d9)901)730 = dodo

Biva WANNY - 13A31 JOTdd NI JONVHO JOVINIUId (dHOdD)

INSOWS/AINSOWS = INSSWdD

SISva VIN - YOLV14390 1YOdWI (INSOMES)

YOLV149d LINGOYd TWNOTLYN SSOUD ( dNOdO)

s8/> soaeynTisa 92 = GON Dd 296T OL ob S46T *FONVE
(16) @T@° = OHY 8SE"> = SHI NV3H 00° = “Ya°S S22" = BSUD
(estys"T) (1T869"=) (yy9T2"o) (175901)
sb x SS3T00° + ZB x 288500" + 8 £28500" + (d9)901 + T6zZS°% = (Id9d9)901

CALTINSQNI- TSvn®) X30NI Pose] W3HNSNOD (14949)

- % -

"65>

*LS>

“955

"S55

“£56

“2a


SU3NDIFYOS NO SWIVID O11041YOd FLVAIYd 40 %901S
‘SUaNSTINOS OL S3ILIVIAVIT 193810 WY31-9NO] 40 4301S
JSNOI3NOS NO SWIV1D 193810 WY31-9NO7 390 2018

aN VTINagTSaa NON - 3LVAIUd - SL3SSV 4
SUNOH YOSVI ATNIIM sonaany

‘SNOSU3d JO SNOITTIW - 394804 ut
31Va IN3WAO1dW3 devs
$391dd 226T ~ WiIdVD IWIINSGISSY 3LVAIUd 13N 40 XDOLS
$39Iud 2261 - Wildvd WHINad TSN NON 3LVAIUd 13N 430 XD0LS
WAIUd - NIOLS WiIdvD ssoUud
INBNWAADS - WOLS Wildy) ssous
WLOL - YIOLS IW1lIdVI SSOUd
$391Ud INFWUND - LNSWLSIANI AMOLNSANI J1LVAIUd
S30IUd ZZ6T - IN3HLS3ANI_AMOIN3ANI 3LVAIUd
(WSN) S391T%d INSYYND - INSHISIANI G3XI4 31VAIUd
$39TYd INFWND - IN3WLS3ANI G3XI4. 31VALUd
S30IUd 2461 - IN3WIS3ANI IWIIN3GIS3Y SSOUD 31VAIYd
S30IUd 2261 - INSWLSIANI IWIIN30IS3Y-NON SSOUD 31LVATUd
S39IUd 2261 - IN3WIS3ANT Gaxts avArud
(VSN) S391%d INFUND - LN3HIS3ANI G3XI4
$39Tdd IN38UND - IN3IWLSIANI G3XI4 NaeNaan03
(ys), rey ig 2261 ~ IN3WLSIANI G3XI4 IN3WNY3A09
ANZWUND_- S3SVHIYNd IN3WNY3AOS 1Va3N39
S39IA3S GNY SGOO9 NO 39NVIVa INIWNd
ANSHLS3ANI “IWIINSGIS3Y 31LVAIUd - S3ALINSINI XVL
AN3WIS3ANI WWIINIGISIY-NON 3LVAINd - S3ATINIONI XV
(VSN) S39TUd IN38IND - LINGOYd IWNOILYN SSOYD
$39TUd INININI ~ LINGOYd IWNOILVN SSO¥S
AINGOYd TWNOILYN Rood Was. ravi eats
$391ud 2261 - Londodd VN SSOUS

(8@Sd) SISVa VIN - reeeets TNSNSSADS
3ONVIVa 30vul SG009
(WS) S39IUd 2261 - S3SVHIUNd INSWNY3A0S 1vu3N39
CSLHSI3M 30VU1 G3xXI4) 3LVe IN3WAOTdW3NN NOIIYO4
SHIV1D NOIZ8O4 - 31VY 1S3NZINI WH31-1YOHS NOI3ZNOI
00°T=2Z6T_ ~ (SLHSI3M 1YODNI FIGVINVA) 3DTYd 1YOdX3 NOIINO4S
0O°T=226T - (SLHSI3M 30VYL G3XI4) JITYd 1LYOdX3 NOIINO4S
SU3NSIFNOS OL SITLIVIGVIT or ios1uod 40 9301S
‘SY3N9IFNO4S OL SALLTIIGVIT IWIINVNI4 40 XD01S
‘SU3NDIZNOS NO SHIVID orton isod dd ¥201S
SU3NDIFHO4S NO SWIV19 IWISNVNI4 40 NOO1S
NOILVNDA 3LVA ZONVHIXI NI AINVd3YISIC IWOITISIivis
(3$/SN$) 31Va ZONVHIX3 1OdS
X3QNI JLVa 3INVHIX LOdS dV37 Y3LYVND INO
X30NI_ ALva ZONVHIX3 1OdS

- NOTA YTsudad SIWONOD3
QNY SuouNa

'SSIWHO
aNIVA Woy WOud aa 3ONVHIXS NOIZXO4 G3LHSI3M 40°05 NONSSuaATO 404 AWNNG ©

8
SNIMOYNOE NOIIYOS SNTOvUNOSSTG aT Y0d ‘Wwuada4 Yo4 AWNING
Olin °S°N 1937438 O1 AWHNG
‘SUaNSIZNO4 OL het Wa31-1YOHS NI 3ONVHD
SY3NSI3YO4 NO SWIV1I_ WU31-LYOHS NI 39ONVHD
(VSN) S331dd LN3YYND - HLYOM 13N FTGISNVL NI JONVHD
(VSN) S33Tdd LN3Y8ND - HLYOM L3N TWIONVNI4 NI 39NVHD
‘S3TLTUOH.LNV Ayano 2 3H1 40 NOILISOd IN3WNY3A09 13N NI 39ONVHD
= 3 odassY NOI3UO4 LAN J1VAIYd NI JONVHD
AMIN 40 SL3SSV_NOI3ZYO4 LIN NI 39NVHD
sunorng ol. Sau azvel 01104180d WY31-9NO1 NI 39NVHD
4. NO SWIVID O1104140d WYI1-9NO1 NI JONVHD
susNarsaod OL S3ILTVIGVIT 193810 WI3L-9NO7 N:
SU3NSIZNO4 NO SWIVID 1939410 WY31 SNOT NI 39NVHD
(31LV8 SNTLVO14) JSNVHD 31LVY ZONVHIX3 G3LIadX3 YOS AXOUd
(ALVa G3xI4) 3ONVHD 31Va 3ONVHIX3 G31939dx3 NOS AXOUd
WIIN3GISI4 - SL3ISSV 40 AVII0 IJIWONOD3
WIIN3GISIY-NON - S13SSV_JO AVI30 JIWONOD3
NOTLYNDA_11SOd30 GNYW30 NI AINVd3YISIO WOITLSILVIS
‘SIN30IS3Y A@ G13H S1ISOd30 GNVW30 40 WIO1S
(VSN) S331Ud INZWND - JYNLIGNIdX3 YIWNSNOD
‘S39Tdd IN3YND - JYNLIGN3IdX3 YIWNSNOD
JONVIVE INNOIDV INaWND
SIN3GISIY A@_013H_AINIYYND 40 WIOLS
ud IN3Y8ND ~ 1TIT430 IN3WNY3A0S G3LVINAND
NOLLYNba NorivZEIEin ALIDVdVI NI AINVd3YISIO WOITLSILVIS
ae NOILVZIIIIN ALIDvdv3
BWNIOA - NOILdWNSNOD 110
‘S321Ud INFBND - JINVMOTIV ro anSNO uray

S331Ud 2261 - 3YNLIGN3dX3 NOILdWNSNOD

Cand sa+aa) sohasege caMONNOGNN
SL3SSV 1VIT440 NI_3ONVHD HLIM NOLIN3AU3INI 37I9NOI3Y O1 LN3WLSNTOY
NOLLVID3Nd3d XV SLVINDIVI OL GASN 3W3HIS NOILVII9ud30
SLISOd30 3WIL NO SIN3W3YINDIY 3ANISIN
‘SLISOd30 GNVW30 NO SIN3W3YINDIY JANISIY

NOILINI430
WIN 1300W YO4 SITGVINVA JO 1SI1 IWITLIGVHdIV

- $02 -

Zs 24119
62T 4a113
82T 20119
(90x34) uNadIID
Hq
<It jv
Stl 313
ozTt add
T2t YNdID
<2t dD
22t sud
vet
caf AIID

(90x3) 1rd
2r VSNAddID
It AddID

ad4dID

wNd4ID

or d4aID
2 VSNADSID
£2 Ag412

(90x3) 9413

r4 as2

28 ‘Wwass)
(90x3) MAINVYSD
(90x3) UNINVES3
VSNAdNSD

AdNSD

6It 4LOddNS3
NSD

SZ 33099
os weed

(90x43) 92
SST MLANNdD
SST 49842
2st Ft
ST ML4Xd43
ooT 142
<oT 149
2oT 9429
Tot 3:

(90x34) EErER]
ost
sot av31I39
s2t 30939
9ST OON'

(90x43) »T69AGD

(90x3) Tzs9agd

('90x3) ‘SIYIXAG:

(90x43)

(90x3) ASinvAdd
gs sa)
ost 21802
gz ‘SNAYMNGD
22 ‘SNAMNGD

(90xa) ONG:
Ist dV4Nd>
6oT Sv4Nd)
baad ‘141109
2st 341109

(90x38) ya1109

(90x3) 301709
oT 1v014309
Lo 2axI4302

(:90x3) ¥YAVII0D

(90x3) YNAVIIG)

(90x3) waqa2
68 aa2
6 YSNAID
J AID
a4:d Twauns>
se 4und3
92 dawns.

(90x3) 43nd2
sit no2
sz 1099
id AVI92
T 22
86 na

(90x32 ) ravanog)

(90xX3) UNIVE)

(90x3) a2

(90x43) vo

1 NOILVNBa | DIINOW3NH


608°0 Ts0°0
608°0 290°0
608°0 290°0
608°0 Ts0°0

dvis-1 143099V7

s8/> eh ate 2> = GON TB £86T Ol 6B ZZ6T *3ONVE
202°T = MG “2 = SHT NV3N £00" = “Y°3°S 866° = BSYD

(2829° Td (1g909")
(CT- 37133901 * 661199" +  (H12)901 * HBTZZs" +

(£29202") (zse2"s)
BWIL x Z8T000" + ((((I)H19)901)1390) % T43099V1 + =«LZE8T*T- = = (3759907

SLVY IN3HAOTdW3NN (NN)
21970 wns

S>°T 910°0- (Z-)
Tst't 1z0°0- c9-)
ST9°0 £10°0- (s-)
T6z"0 900°0 )
£It°2 2£0°O (z-)
995°S 180°0 (2-0
0l6°9 9<T°O (T-)
o26°S £02°0 (o-)

Avis-1 143030V7 vl

s8/> aot cad ZZ = TS <e6T OL TB S96t ?JONVE
(£°8) $02" = OHY ZOS*- = SHT Nya 00° = "H3°S £66° = BSYD
(S£06°TT) (¥8T60°9)

SWIL x ZO9TOO" + COCI)STdOd9/(1}379)901) * T43099V1 + TS068E"- = (STd0d9/41:))901
39404 | yoav1 1319)

$8/> :Q31VWILS] £9 = GON TB £96T OL TB Z96T = 39ONVE

(1°2) TZ2*- = ZOHY (6°2) 9TO"T = OHY Z%>°Z = SHIT NV3N 982° = ‘Y°3°S SO8* = BSYD

(869592 "£) (9996 " >) -

NND * 9Fb6ES" ~- SZ680°9 = dX3d9 ~- (4-)MD/OOT * ((>-)MD - MD)

SNTYNLIVINNVW NI 3LVY 39VM ATYNOH (MI)

“SIT

“ott

“It

-12-


069 295 8S S95 Midi
19 $59 S59  ISIaYOIr

89 £95 dir
m9 Aivolsr
699 999 adysr

289 285 «8S MddNOIr

pr34 ad34r
289 «08g dose
S29 yoxar
G49 LOS 265 985 09S ‘9xar
229 959 zes es S9S Mauar
£19 £65 619 moaaar
Tle S89 89 289
819 119 9249 SL9 bt9 SL9 249 499 599 299 S59 £59 259 159 209 109 009 465 969
6S $69 S85 B/S L1G 895 86S Lb5 40S 90S SOS 6h 68) 64> IZ O2E sts oy5 wot
9 ar
949 1L9 009 L465 695 959 war
G26 616 906 906 S06 sfL 449 149 IS9 929 G29 £29
299 SbS bhS EbG 25 ToS 065 80S G6b HE GZE B2E S2E HOT H6T HST 25T BF rar
869 259 3q33ar
699 oanvar
959 819 qasAar
609 909 iar
029 699 yusar
999 199 Jaisar
999 999 gaisar
eso 2¢S = VSNMNOC
655 SSS MNar
699 699 dvjNnar

os9 849 129 asv4Nar
6249 829 659 ‘vaNndr
999 © Qidditar

£99 Aditar
999 299 «199 aodi10r
299 ar

299 9ZS GL
s59 159 059 azq.i0r
TS9 £65 SaLtar
229 ir

619 409 909 09
91s ots sIS 21S

029 609 aunor
oz9 209 £09 ‘unor
g68 L6@ 259 B29 295 OTS 20S aor
659 8£9 965 05S oor
sss asIor
229 1A95~
ZG 2S £25 VSNAVIIT
£25 225 Al
22g «2Is Adv39r
225 Agvoor
91S 60S or
619 sir
619 bu
619 Wer
619 vier
619 soar
619 wagr
619 laer
619 var

£26 169 SbS S6H LLE ANOXdI
BbL 922 = AlddNSIT
Sst OVSNAGAD
Tey VSNAGAS:
62 9GE GSE BEE AGAD.
992 Ize GAS
61s 904 S9Z 4SE AdNVYLXD
6T> S9Z %SE ASNVYLXS
9lb STy Tl 606 20d AASXS.
405 S0b AGNASXS.
205 05 AGASXS

Oly 604
605 805 AOSX9.
oly <Ib Il 805 £0 AdOSX9.
9lb <b Ib 806 ASOSXD.
S8> G2 STb ITb OTb 06 68 ASXS.
oly ASSXS.

Ya@HNN NOLLYNda | FTeVINVA
- 961 -


/1d1109 - (T-)1dL19 =

14113

SUSNOIRYOA OL SALLIVIGVIT OFIOILYOd FLVAIYd WUFL-ONOT 40 YOOIS (1119) “SST

79d1109 - (T-)9d119 = 1dL19

‘SU3N9I3804 NO SHIV13 OT1041¥0d BAVATYd WHAL-9NOT 4O HOOLS (IciL19) *ZET

8L/T = nates] 09 = GON 8 SZ6T OL TD T96T ?39NVY
Boe VN = SH1 NV3H 868° = “Y'3°S SOS" = BSYD

c d C J

ToI24G * 82SE2°T + TETZd x £6299°T -
(y°2)

CANVELWD - AASHD - AOSHI - ADHD - ANVULXD + AASKD + AOSKD + ADXD) x BOLEZZ"  -
(t's) (9s)

(CASH3)130 - (A9X9)130) x 680ezs"  - (CVSNAMND = 1)130 * eTess" -

(92) C9") (oo) m
ob x S9S0S6° + SD x 9TZ6T°2 + 20% SBOSS°T + LESZTI- = OONV]D

‘SNOISSIWWO ONY SYOUN3 (OGNVED) *95T

895°0 850°0
YN YN ooz"s 200°0
ooz"= §00°0

00s"0 002": 2400°0 |
00s"0 288 002°< 600°0
002°0 OvT‘O o02"< Tto"o

009°0 este 002" +T0°O
AVLS-1 243099v7 dvis-1 143099V7

824/T 'G31VWIIST 09 = GON} SZ6T_O1 TB T96T :39NVE
Sb°2 = Md VN = SHI NVAW $2b° = “U'a°S 99Z5° = BSYD

(6°T)
ToT4d * sszose’ + ((1)Y39/T) * 243099V1 +

(9°T) (e'T) (2)
CCCDIMNA) TAG) % T43099V1 + = ST69AGD * SSOLOE" + ITZ * 6LEST6" - 95590 * Loz9by° -
C2") (s°T) (st)
££2790 % (ASHIITIG * Z9GH9Z" +  (SUNITI * L6SSTI" - SIYOXAGD x 229506" -
(2°T) (2) (6°T) (9's (2°)
(ASH3)190 x ZZTT6O" + $B x EzeG9m° - sb x s90bze° - 2x TEb6° - eobles'- = USA

‘SU3NSTSUOS OL S3ILITIGVIT WHIL-LYOHS NI 39NVHD (71S09) “SET

82/7 aivnr isa 09 = SON 4D Set ty ac) net ?JONVa
S8I°2 = Ma = SHI NVIN TZZ* = bSud
(e"Tt) (s") (Z") (oT)
TETZ0 * S2266°T  - 921990 x T@ObZT” +  9Ff90 x HTTZe2° + TIbdd * LE2ZT°T -

(s"t) L&2) ("t)
WLI * 29882T° + (ADXI)TEG * ZETZST° + (1v014309 + 1)130 * (sEzz90 - 1) x SEssO" +

(2°22) (o's) (s"2)
STI69AGD * G869SZ° + (49SU49)T90 x 9Z9Bb5" + (suo)130 * eessey" -
(TT) (2) io) Loon 9) .
$B x 106225" + «sb x GBb7G6" + 20% 6S6ST° - £TObsa"- = (T-) % JLsa3

SU3NSTSYOS NO SWIV1D WH31-LYOHS NI ONVHD | (31809) “OST

-e-


= 139WN

149WdN/AT490N
$39IUd 2261--SLYOdWI 13N4 4O 3NNTOA (14EWN) “Tod
UaTISNN + ANTSONGN * S9S"O % T49DHN = ATISHN
“Obd

$39IUd INIWWNI--SLYOdWI 13N4 40 3NIWA (A14EHN)

ASTJONN/(ANSIOTIN + YdST4N + SNISd14N + SN74BXN + SNBINTEN - SNNTBTAN - SND14N) = 1450HN
(VS) (G@H) S1YOdWI 110 40 3HNTOA (149tHN) = “6SL

ANSHdN * T4INSWN = ATJNOHN
S39TUd ANIWUNI--S1YOdHI S009 13NJ-NON 40 3NTVA CATJNEMN) “8SZ
28/5 jaasvwTisa yy = >) O86T O1 TH OL6T 2 39NVE
Ze°T YN = SHT NYS 929° = *a'3"S S66" = BSUD
921° 16)
COT-JANEX + ANTX) * G°O * 9TZSO°T +
= AH

Cos°z C9L'S (£°2) (6°T)
sb x £85229° + 2D TL6bS°T + Ib x 9129" + TIEszg°-
eta

CALIINSOT- svn) NVdvf WOU S1YOdWI SGOOS “S°N CAIN)

> = GON 2) 096T OL Te OZ6T_ + 3ONVY
sud

28/> G31VWILS3
96°T = MG) YN = SHT NV3H 506° =
90°S)

cae WANEX * SE"O + ANOX x G9°0) x GbOEOTT +

(os (50°)
TD * $26090° + 9ZSTTO°- = /ASMW

+

(zo
2b * 226255"

(ss (928
ASTIAGN * S9Z8ZZ"  - = SD G6E9HT" +
(ALTINaOT- sve) ANVWYAS WOUS SLYOdWI SGOOS “S°N (ASIN) §=“9EL
20/> 'O3LVHIIS3 bb = GON ob over OL Tb, OL6t_ ?JONVY
2Z°T = MQ WN = SHIT NV3H SS° = ‘43'S osu
(6°99)
ANIX * 968ST6" +
(st-T) (6° (Ze°T) (Zo°T) (2T"2)
ASTIAGN * 2STOZ" - £b* T946ZT° + 2B x% SOTS6T’ + TB x 2599GT" + 22928" = A3NW
CALLINIGI-Isvn®) “Gel
28/> =:G31VWIIS3 4b = GON 8 O86T ge 1 eget ?39NVa
2S°T = M@ WN = SHIT NVBH 925° = ‘Y°2 bsa3
(82"sTT) (99°T (68°T (Tet) (es"2)
ANIX * 906266" + sb x TSES06" - 2B x 960996" - TB * 6289%5" - 6S550T°2 = AINH
CALLIN3GI-ISYNB) VOYNVI WOY4 SLYOdWI S009 *S’N (AZ) HN “vel

- Ist -


Iwanvais + Ivass9 = Tyaunz9

JOINVIVa LNNOIIY ‘INSWIND ( wawnsa)

ASNVYLWS - AdNVUIWS - ASNVYLXS + AdNVULXS = TWENVYLS

JINVIVE INIWAVd Y34SNVYL ( TVENVULS)

S$391Ud 2261 - (SISVA VIN) S39IAYIS ONY SGO0D 40 S1YOdX3 13N CINKL3ND)
‘Iwas9 + alvS + Iva99 = Ivass9
S33IAN3S GNY SG009 NO 39NVIVa ‘Ciwasea)

ASOSHS - AdOSHD - AASHD - ASIOSXD + AdOSXS + AASXD = 1VESO

ANNO39¥ 39IAN3S NO 3ONVIVE (vaso)

ASH - ASX = TyvE99

JONVIVa Javui (1v899)

“025

"6T>

“8Tb

"LTd

"9Tb

“stb

SJINVIVE *3°II'S


-i-

¥/WSNJI099 + (T-)VSNLGI0D = VSNIGRI9

(VSN) SISV@ VIN ~ 1€30 IN3WNUIA0S ( VSNLG:



-66-

unaffected in these simulations. Even with the decline in forei gn

interest rates, demand is not stimulated enough to increase income.

Supply Side Shock

The domestic price shock simulations, like the previous
exchange rate exercise, serve primarily to illustrate the properties of
the MCM. To implement the shock, we exogenously increase the error term
in the domestic absorption deflator by one percent; no other pol:cy
changes are assumed to take place. Table 10 gives an overview of the
simulation results. The increase in prices affects both the supply and
the demand side of the economy. For example, in the U.S. price shock
income falls as prices rise; the rise in prices tends to reduce labor
Supplied and hence to lower domestic Production (the aggregate supply
curve shifts to the left). Moreover, the rise in domestic prices lowers
real money balances, causing the LM curve to shift leftward, and raising
domestic interest rates and reducing expenditure. The rise in prices
also shifts domestic spending away from domestic output and towards
imports. Similar results are obtained for the other countries. Although
exchange rates depreciate somewhat, the effects of this shock are not
widely transmitted abroad. Tables A-18 to A-23 in Appendix 1 present

further details of the Supply side simulations.


ATINSHN + AASHN + AOSHN = ASHN

‘SAN3WAVd OTAMRS | FWwio1 | ery

ASASHN + AGNdASHN + AGGASHN = AASHN

SINSWAVd SWOONT INSWISJANI W101 CAASHD)

AQPASHN * BNOdASHN = AddASHN

(VSN) SINJWAVd 3WOONT INGMISIANI 193810 31VATUd (AGdASHN)

S8/> :Q31VWIISI 02 = GON 4d Z86T OL we Bie ?39NVU
Bb°2 = MQ L2b°2- = SHT NV3BH $20" = “US'S esu2

(os6s"8T)
(CC T- )9AV974N/CT- JASASHN ISO ieize" +

(208T"s) (6T202°E)
(CTSUNI9O] * SZTZZT" + «BBESZ9°- = —(SAV9TSN/ADASHN)IOT

SINSHAVd 3WOONI "INSHLS3ANI AN3HNY3A09 CASASAND

S8/> :Q31VWIIS3  0Z = GON od Z86T OL 1 S26T ?39NVa
T4T'2 = Md 609°2- = SHIT NV3H 650° = “Y°3"S esad

(8TT60°6)
(CT 9AVd14N/CT- JAGNdASHN S01 * 996T2S" +

(£6009°2) (2ss2e"8)
CTSUNISOT * 926525" + 92L6°2- =  (SAVdT4N/AGNdASHN)SOT

SAN3HAVd 3WOINI IN3WLS3ANI 193YIG-NON J1VAIYd ( AGNdASHN)

S8/> :031VWIISI = fb = od 2861 OL 1 Zz6T ?3ONVE
(L%)) £29" = OH Z29T°T = SH NWSW He o0z” = was esu3
(66£226") (9sZ05°2) (sszS2°2) soves"T)
(CUT )dN9ON/dNIN ISO] * BOZTI"Z + £BD * B66SbT" + 2B * £6466T° + TB x Toot6o” +
(6205'S) (8oE56°2 (eset)
(d3TIGN x IdddN)901 * £22608" + (NINISO * ZTZ6°Z + H0H0°ST- =  (WOEdVIN - BNGdASWN)SOT
(VSN) --SINSWAVd 3WOONT INJWISIANI 193810 aLVATYd (BNGdASHN)

s8/> JOa1WWIIS3 IZ = GON +d z06t o1 1B ere +3ONVa

(2°6) T£Z" = OWN SH1 NV3WH 920° = "as = 8sa2
(66295°2) (9zss6"s)
(dNSNISOT * SZ6B0L" + —(OTI3N/OTM49d4N 901 * 269505" +
2° 9) (Tstso"s) (56626°E)
(d89dN * 00T)907 « Sezeez” + (9WNISOT x S6Z00Z" + T8bz0°Z- =  (AOSHN)SOT

RWATIIM ‘Ny ‘INSWIS3ANT ‘SNTONTSX3 SINIMAVE ‘3OIAN3S (AgsHn)

"£92

*29L

“T9L

"092

"652

"LSL

‘SUBASNVUL ONY S3DIAUIS 4O SLYOdWI “3° IT

- SST -


United United
Canada Kingdom Germany Japan States

IMPORTING COUNTRY

Canada.......065 -- 0.2 1.2 2.2 1.1
United Kingdom.. 1.1 -- 1.5 1.0 1.6
Germany......... 1.4 1.0 -- 1.5 1.2
Japan....eee eee 1.0 1.0 1.0 -- 0.8
United States... 1.5 1.1 2.0 1.9 --

Long Run Price Elasticities of Bilateral Import Demand

EXPORTING COUNTRY

United United
Canada Kingdom Germany Japan States

IMPORTING COUNTRY

Canada.......... -- 71.5 -0.9 -1.2 -0.7
United Kingdom -0.7 -- -0.6 -1.4 -1.3
Germany........- -0.8 -0.4 -- -1.9 -0.5
Japan........5- -0.8 -0.8 -0.7 -- -0.5

United States... -0.7 -0.9 -1.8 71.2 --


¥Y3ar/GAAOSXF = AGNASXf

(°S°N$) SLdI3IIA SWOINT IN3WLSIANI (GAASXP) “S65

~ £20 -


*puooss (suoTyenbea a8ptuq) sety}juepy-Tsenb pue seTyTquept
puv 4suyj suoTyenbe (peqeuy4se) TeuoTAeyeq UITM Ppeuepuo sue suoTyenbe
S404DeS-qns {Sow UTUITM ‘“Tepow eTOYUM euy ynouZnouyy ATeAT NoesuCo
pavequmu pue suojoes uTUITM pednous sue suoTyenby * (puewap
O}4sewop) Tepow uemyen ayy JO 4OJOeS YSuTJ Oud ST ul*Du ‘OTdWexe UOJ
PT4OM-JO-3S9H udu
seyzeqys peytun uly
ueder ufu
AuewseD udu
wop8uty peytuN udu
epeued wu
tsoTuoweuu AUQuNOD
BUTMOTTIOJ euq Aq papedaud sue sudqoas-qns pue su0joes OL
*Buyqunoo eTqnop pyoae 074 Tepow Aujunoo yore wWous papnToxe
aue suotyenbe yuodxe spoo3 Teue,eTTq ayy esneoaq ‘yoauu0o ATAOTUAS
qou sf} ‘ueaaemoy ‘STUL ‘“Tepow oOTuJoMOUODe0UDeW ayeuedas © eueM YF YZNOUY

s@ BUTISTT uoTJenbe ayy UT pequesoud sy} Tepow Auqunoo yoRT

soTqeyueA uByeuog “IIA
squowked Jo soueTeg pue uot UsAdeUT TeTOTJJO “IA

sdTysuotjzetey eyey eBueyoxg °O

SMoTd TeqTdep ueu30 *a

SOTITITAeTT pue SUTeT) quew4seAUI qoouTd “V
qoxueW TeToueuT_A Teuofyeusequl “A

$7009S Teqtdeo Teay pue Aqtoedeg °9
sosem “gd
S80Tdd “V

Atddng pue sedotud “AI

-z-


-37A-

TABLE 3

Demand
Currency Deposits
COUNTRY

Canada......... 1.17 0.81%
United Kingdon. 0.64 0.87
Germany. - 0.23 1.35
Japan. 0.63 0.43
United States... + 0.66 0.80

Long-Run Interest Rate Elasticities for Money Demand Equations

Demand
Currency Deposits
COUNTRY
Canada......... -0.02 -2.53*
United Kingdom. -- -0.33
Germany. «+--+. -0.07%* -0.02**
Japan -0.01 -0.06
United States, . -0.05 -0.01%*

Notes to Table:

* Canadian M1
** semi-elasticity


0b2°0 g00°0O
990°0 200°0
96T"O 800°0-
029°0 $20°0-
Oty'T 6%0°0-
652°2 Ts0°0-
SS OzT‘0-
2£90°S 99T"0-
szs°2 6T2°0-

dvis-1 143039V7

28/> =:G31VWIIS3 = 2S = D O86T OL TD 996T = 39NVE

(£%6°) 2909" = OHY WN = SHT Nan Tlbo" = “y°3°S Té* = BSYD
(60°0T) (882°) (2°)

sb % 2Z02Z2T° - 2b ST8bz20° + Tb x e9Ez50" -

(29°E)
(€(N99)9071 * GBS"O - (dNOII9OT) * 966TH” + CCC TIGN/CI)I9D * C1IANSXd3)901) * T43099V7 +

(TTL*62)
(CANONI9OT % ST + S2T6Z°S- = (C139 * ANSXd9)/ANIK)901

(10a) *S"f OL Siu0dx3 $0009 NYIOWNYD (ANDX)

$8/>_ GRIVHILSa _ 22 = GON oS 2961 O1 Tb S96T *F9NVE
Ma” 82 = aa'S 622° = 8Sud

8° = SH1 NV3H 995°
(ybL2s"s)
(TSUN = CT = xe (T= )TSINGN/14IMdN}) % OOT) * O8Sb00" +
(2£T2°L) (eT6sT"9) (xS295") (g088z"£)
sb x 280988" + 2b x 6OZ8SZ° + Tb x TISSSS° - 9bese2°- = SNISd1dN

ONIOTING X901S 110 (SNISd14N)

#
s
]
2
°

“4

r9e°L tHINS

6s2°0 aq)
Slo" $ (ot

22222332 3

Wisin dd wind
z
6

822°0
869°0

St SL>"0
eet iss°< 692°0

Avis-1 243039V1 Avis-1 143039V7 ow

eageeeessee
nes

SS553 3555388

C
€
€
€
€
$98°0 €
€
C
€
C

$8/> :G31VWIIS3 IZ = GON 98 zeer Ste Te e26t ?39NVa
(8°6) SL" = OM 60°SS = SHI NVIH 226 = BSud

(CCL) 14 IMdN/CTSNSIMdN 1901) % 243030V7 +

(6e2s92") (6%T6 OT)
CCCI) 14IMdN/CT134IMdN901) % T43OISVT + = (NININDT * Z59SS"E - sb ¥ STH" Z +
(£2902°6) (89TZ9°S) (46b2Td") (eezs2"s)
ZB x $9986°2 + TD B£80E°T - ITbsd x Tezeze" - ££T6°S9 =  3713N/TSNIGN * SNITIN » Ob

- 6¢T -

"Ose

"62


‘WIIN3GIS3Y - ZLV8 NOILVII9%d30 JIWONOI3

WWILN3GIS3U-NON - caeea NOILVID3Nd30 JIWONOD3

WIN - 1930 IN3HWNY3A09

SLVAIGd ~ sunaareaa hi A@ 013H S1ISOd30 GNVW30

W101 - IN3HNYIACS ag 13H S1ISod30 GNVW30

‘W101 - SiTSO0d30_GNYW30

(VSN) S39TYd IN3UUND - FYNLIGNIdX3 NOLLGHNSNOD 3LVATYd
SINVIVE INNOIDV INZYUND

SONVE AG G13H AININUND

BAVATd - SIN3GIS3Y A@ 013H AINTYUND

BLVa NOILVZITIIN ALIDVdvD

AVG Y3d S1ZUVE JO SNOITTIN ~ NOILdHNSNOD 110

(VSN) S39TUd ree ~ ZINVMOTIV NOLIGNNSNOD IW1LIdv>

A3NOW NYS TWUINID JO 3MIVA TWNLOV

“XSnon YNV TWYIN3D JO SNIVA G3LV1NIIVI

A3NOW YNVE TWYIN3D JO 3N1VA_TWNLo¥

$39IUd ZZ6T = JYNLIGN3dX3 NOIIdWASNOD 3LVATUd

(30VaL LISNVYL AINIVW) JONV IVE 3dvu1 O1 INaWISNray

SLISOd30 NOIZHOS NO OLLVa 3AN3SFY_GIYINDI JOVAIAY

(VSN) S39TYd LN3WND - AXOYd 3NOINI F1EvSOdSIG

(VS) S391%d IN3YYND - AXOYd 3SWOINIT 3J1A@VSOdSIG

(WS) S30IUd 226T - AXOYd JWOINT 31GvSOdSIa

$1d139394 UZISNVAL WLOL

$1dI393e Y34SNVUL FLVATYd

$391Ud INIMND - SISVG dO@ - SLI0IYI YA4SNVYL IN3WNYIAOS
S1dI393Y SWOINT INSWLSIANI

S1dI323Y_3WOINT IN3WLS3ANI_193¥10-NON

‘Sid7a934 BWOINT IN3WiSIANI 193410

VLOL - S3IIAU3S 4O S1UOdXa

S39IAUIS Y3SHLO 4O S1¥Odxa

CaTggKae) SLYOdX3 “IWNIWON O1 LNAHLSNrdY

SISv@ dOd - SLUOdxX3 SGOOS *y°N IWLOL

S3DIAU3S GNV Sd009 JO SLYOdx3

(YSN) S39T¥d IN3WYND - SISVa VIN - S1YOdxX3

(WS) S39IUd INJWYND - SISVG VIN - S1uOdx3

(YSN) S39Iud 2Z6T - SISVA VIN - S140dx4

(WS) S39IYd 226T - sisva VIN - S1uOdx3

- S1u0dX3 110

(VSN) AVG Yad STINNVE 4O SNOITTIN - wnatoulaa. 40 S1¥0dX3 “WN
NoILvnea 1¥odxX3 NI IwngIsay

$39Iud 226T - SL¥Odx3 S009. “"N TW1OL

SN) SAIYINNOD WOW Y3HLO OL SLYOdXA S009 _*¥'N

(SN) S3TYINNOD WOW Y3HLO on‘ Sitoaxa $0009 “°N JO “S°N-O1 SLYOdX3 40 JYVHS
(§SN)_SATYINNOD WOW Y3HLO OL S1YOdX3 S009 *y'N JO N¥dvf O1 SLYOdX3 4O JYVHS
(SN) SATYINNOD WOH Y3IHLO OL S1YOdxd SGOOD “y°N JO ANVWYIS OL SLNOdX3 4O JYVHS
(SSN) S3IMINNOD WOH Y3HLO OL SLYOdX SGO0D “¥°N 4O VOVNVD OL S1YOdX3 40 JYVHS
($SN) SLYOdNI “AN W1OL 40 “S'°N WOH4 1YOdWI SGOOD 40 3YvHS
(SNS) SLYOdNI “WN 4O —- 33d0 “19X39 - ATYOM JO 1S3Y WOU 1NOdWI SGOOS 4O JYVHS
($SN)_SLYOdNI “A°N_WLOL 4Q 34d0 WON4 1YOdNI SGOOD JO 3YVHS
(SSN) SLYOdNIT *A°N W1OL 40 NVdVF WOU4 LYOdWI SGOOS 40 JYVHS
(SSN) SLHOdNT “°N WLOL 40 ANVWYID WONS 1HOdWI SGO0D 40 3YvHS
(SN) SLYOdWI *¥°N TWLOL 4O VOYNVD WONS 1HOdNI SGOOD JO JYvHS
00°00T=226T - SNIUNLIVINNVW NI_3LVY 39vM ATYNOH

ava .N3WAOTdW3NN

ANSHISIANI ‘IVILNGIS3Y YO4 IW1Idvd 40 1S09 43SN

ANJHIS3ANI IVIIN3GIS3Y NON 403 TWLIdv) 40 1S03 4aSsN

BAN3ATY ANIWNYFA09 LOL

BWOONT auyyod¥o? NO aLVY XV TVONNY

BWOINT JO 31ve GYVONVIS

¥40193S auvated OL SH44SNVUL INAWNYIA0S

S3I1NG SHOLSND

(YSN) CLVA) S3YNLIONadX3 NO S3XVL

CYS) CLVA) S3YNLIGN3dX3 NO S3XVL

SMIOLS YILYYNS JO ON3 — SYNVE_TVIDYIWNOD JO SONN4 J1GVNVOT TVLOL
SMIOLS YALYVNO JO ON] - SIN3GISIY A@ 013H SLISOd30 3WIL

AVG YU3d S13UxVa JO SNOITTIN - SNDOLS WNIIONL3d “HN

(WS) (G3AOWIY SLYOdWI) dOS 40 JUVHS II1S3WOd

AWI OL NOILdTYISENS A109 GNV UGS 4O NOILVIONIV

‘S32IAN3S NO aon

AGAR - YOLIV4 INNLSNCGY TWNOSV3S
AINSSX3 - ¥O1IV4 INaWISNray Twnosvas
AaL3 - YOLIV4 INAWLSNray IWvNOSV3S
AINSOWT - YOLIVS IN3WISNaY WNOSV3S
AdIa - YOLIV4 IN3WLSNCAY TWNOSV3S
AddI3 - YOLIV4 IN3HLSNraY TwNOSVaS
A94T3 - YOLIV4 IN3HLSNFV TWNOSV3S
3 - YOLIVS ANSWISNCGY IWNOSV3S
Add93 - YOLIVS LN3WISNCOV TWNOSV3S
AWI43 - YOLIVS IN3SWISNCOY IVNOSV3S
mga 7 yoovd AN3HLSNaY TWNOSV3S

OLIVA AN3WISNTGY IVNOSV3S

HINOW ¢ ~ 3LVU fyor Nivaoanal S3ILIYOHLNY 1¥901

BLVa T1I@ AUNSVIYL AVG Té

(SAILIVIGVIT 31€IOIVI/SLISOdIG JANISIY GIYINOIY) SWNVE *'N NOs OLLVY JANISIY
BLVU NVOT YYM 72/T-£

S3ILIVIGVIT 193uIG 40 AIOLS W3e

SHIVID 193NIG 40 XIOLS 1V3Y

NOILINII30

- 012 -

(90X3) YAVI309,
(90x34) YNAVIIGS
o9F VSNL@309
22b di
(90x3) 9aa9
92> aaa
IF YSNAIS
025 TWaUNnss
Sb ‘gun:
Tao wna
89> ni
Ws 1099
Oos YSNAVI99
Sob YSwa29
3WaI9
(90X3) wa29
OSE 39
(:90X3) iS
(90x3) aay,
22t VSNAGAZ
SLT AGAR
LT GA:
£22 ANVULX3
S22 AdNVYLX3
(:90x3) ASNVULXS
922 AASX3
ora AGQNASX3
£22 AGASX3
Lez ASX3
222 3
(90X3) CaVASXa
A9xa
822 ASOX3
6zz SAINSOX3
osz AINSOX3
Ts2 ‘SINSOX3
224 INSSX3
902 A109X3
(90x43) 9x3
(90x43) 2439X3
Tz 9X3
802 AL3X3
(:90X3) xX1M3
(90X3) XIM3
(90X3) - 9XLM3
(90X32) IX1M3
(90X3) OWIM3
(90x43) UWIM3
(90x3) OWLM3
(90x43) CWIM3
(90X3) WLMa
(90x3) HLMa
ogz Ma
sez 3
62 yond
262 ¥YNINI
pzas
(90x3) DANLI
(90x3) AULa
9LT ANVSLS
6LT AOUd13
281 AaL3
ZT AV3L3
bz 3013
Zoe qu3
(90X3) 10$3

Gix4 wasa
(:90x3) AGASYS3
(90X3) AINXAVS3
(90X3) AaLdVS3
(90x3) AINWIVS3
(90X3) AsIAVSa
(90x3) AdAIAVS3
(90x43) ASAIIVS3
(:90X3) AQAVS3
(90x3) Adg94VS3
(90X3) AVI44VS3
(:90X3) MNGSYS3
(90x3) Ad4VS3

visa

£52 sua
(90X35) waa
td M1u3

oo: 01783

662 201783

| NOILyNb3 | DJINOWIN


S8/>
(879T) Zee" =

?Q31VWIISA 4G = BON ZB £86T OL oO 696T *39NVY

OHY TIS" = SHIT NV3N £00" = “Y°d°S 6£8" = BSYD
(x6oT8"2) (S816 "9) (eels)
DAULN * 65060Z" + AMIN * 62226" + FE98ZT° = AdNON/IALN

oto"o ?WnS
062°0 000°0 (s-)
069°T 000°0 (>)
0298" To0"o (z-)
009°6T 20078 (2-)
OSt"9T £00 -)
00s*6 400° 0 (0-)

Avis-1 1430391 v7

84/T ?Q3LVWIIS3 95 = BON suet Oh TR 2961 =JONVY
(0) 922° = OHY VN = SHIT NV3H ZIT 296° = 8SUD
(s2")
COCT=T)VONN % S* Ox T-1)89TUN * S*Oxx(E-I)TSUND) * T4IOINVI + = SOZLZ0°- = AdYSAN
1T4O¥d 3AMISTY WU3Gad (AdUIAND
$87 OR1VHIISI_ _08 = Tb £861 OL Tb £96T *3ONVY
(1) 60T*- OHY T@l°S = SHT Nw Tso" = "was T= 8SuD
(6S°ZT8T) (ZoTst")
ASASHN x SOO00'T + 094000°- = 4JSUNIN

S8/> G3LVWILSA 08 = GON ID £86T 3 To 59 £96T
(161) 666" “= OHY SZ°ST = SHI NVBH S6E°T = *U

‘SU3NOT3UOs O1 SINSWAVd 1SAYJINI LNAWNUIACO (49ININ)

2/CC(T-)WaNN - (1-).48309N)
ES°=)

C192:
+ VONN - 18309N) * OOT/ ((2Z2T/()B9TUN = O STT- = FINNS * 9°0 + TSUN * 4°O) * TZTs6S° +

(21892°2)
S>26°9L = AdddAN - AION

SANBWAVd 1S3Y31NI IN3WNYIA09 (AI9N)

S8/> :Q31VWIIST 06 = GON 2b S86T Qt 2 096T 3ONVa

(S°TST) 86° = OHY 685°) = SHI NV3H 920° = “ad's sud
(99265")
(9/CCP dN = 0 fE- = FINNS % dOdN)I9OT * ESOOT'T +
(95096 °2) (69ST"02)
Co/COP AN = 0 SE. TOWNS * OOT/IIN * NNNISOT * B69TST” + B9ETH'9 = CANVYL1)907

¥YOLI3S ALVAIYd O1 SYI4SNVUL LNIWNYIA0D CANVALND

“SIL

"LIL

“9TL

“STL

“ole

¥YOLI3S LN3SWNYZA09 “9° I'N

- GOT -


yeo's <90°0
80's 640°0
yeo's 620°0
ye0"s <80°0

Avis-1 143039V17

$8/> :Q31VWIISA Sb = GON 2b 060 oh 28 Ze6t ?3ONVY
Ts@°T = MG TOOT = SH1 NV3W 900° syd

(eesttZ)
CCT-1373)901 * §29569" +
CyySTZ6") (ZT929°T)
CCCI)37a % CI)SYNOH13)901) x T43099V1 + 3WIL x 660000° - TSog0e’- = (37399071

ANSHAO TEN (373) “282

(20%%b2") (2£28T29°) (2o9TT'T) (£9226°2)

(2B % 662500" + 2B x oF>800" + TB x 966800" + BET09°L -
(oL%06°2) C16oTS" )

SWIL * 82zs00" + CCdHa % 27961901 - (186460 * OOOT/S9E * 1093)901) * 699TO" +
yS2lo°2)

CCdwa % 2°86 1901 - (1860560 * O0OT/S9E x 1093 - INSSW3)907) x! 2Zotst" +

(21957)
(Cava % 2°86 1901 - (9ZZ°TOT % 4131901) * 9TH60L° + (dF * 2°86)907)dxa + INSOW] - = 1OddNO3

CNOLLVNDI SANOHTI NI G3LVINDIVD SINSI9144909) NO IWIINalOd (1odanoa) “282

S8/> :Q31VWIISI 25 = GON over ote TB £261 =3ONVE

S8°T = Md 269°5- = SHI NV3H TO" = £26" = “SUD
(20%bb2°) (Z2sT29°) (2o9TTT)
<b * 662500" + 2b %fb800° + Ib x 966900" +
(9206°2) (T6Ts")
SWIL * 8zzs00" + CCdxa % N39)901 - (1860%6°0 * OOOT/S9S * 10931901) x 699TbO" +
(9S226°2)
( (da * 93)901 - (196066'0 * OOOT/S9E x 1094 - INSOW3)901) * ZZ6TST* +
21295")
(Cd¥a_% 93)901 - (SYNOHTa x 373)907) « 9Tb60L° +
(£S226"2)
82109°2- = (da * NI9)I901 - CINSOWR + dN9I)901
(AT#33M) SYNOH unoav7 (SanoHTad “Tez
S8/> FGR1VWIISA $6 = 23 s06t Ste *; Ss6t_ ?JONVE
(o°%2) $26" = OHY SOT*Z = SHT va Tet'2 = sud
(9£60¢°T)
NNA x 26EoES°- =  dX3d9 - (>-)M3/00T * ((5-)Ma - Ma)

‘SNITUNLIVINNYH NI ava 39VM ATYNOH (M3) *08Z

AN3WAOTdW3 ONY

- <9 -


16S ‘SNINSSXT
665 16S <I INSOXt
eeg 2795 «199 Oxr
169 AZAWIMC

169 ir

T69 = AOLWIMT

169 LAME

ST9 aucune
‘ gs9 £29 ic
289 «189 gar

To9 S29 £29 22 SST
959 Ad1ane
669 TIS ¢onr
£29 «OTS NON

SsS £5 825 21S

969 159 82S AML

669 82S AML
Z£sS $29 25 SNANVYIC
sss s25 L2G ANVULE

619 809 909 S09

699 399 ees
89 OL ist
$89 9 aaqaisr
ge9 299 159 Tals
989 ua@isr
989 «£89 «999 «959 saisr
9 Jost
229 WOOdVHSr
et

109 26S wesr

. 129
419 219 S09 aur
£16 459 $19 ST9 19 219 I19 O19 G09 09 £09 £95 0S £05 005 TEE Of sur
619 ‘slur
e19 Wir
619 TULar
619 vier
619 aasaur
919 Aauar
619 ‘sauur
619 wawar
619 Tawar
619 vauar
029 619 war
915 295 TWL78r
65 645 oa1Tar
£19 219 amar
<19 119 war
S59 859 Lb9 £19 219 L275 60S 25k Te
669 419 THe
19 219 919 ZAaae
$59 L19 Aaar
129 029 O19 aur
2489 S19 saur
959 ST9 O19 aur
129 ar
o59 959 Tot
S26 616 906 06 £2 TZ9 G29 19S BOS G6b LE G2E BZE HET <6T 9ST 25ST Bf ANoxdr
629 SbS bbS 265 ToS IdMdr
929 Les dodr

169 829 929 GANnoWde
229 «=1£9

eet Y3ENNN NOLLVNDA | JTEVINVA


-58-

Prices and interest rates rise in foreign countries, as in the
United States, but by smaller magnitudes. Each country experiences a
rise in interest rates, but the magnitude varies in the different models.
The large depreciation in the British pound causes a larger rise in
prices, which reflects the openness of the U.K. economy. The only
country which deviates from this pattern is Canada, due to the different
monetary assumption used.

The results from the Canadian fiscal expansion simulation are
shown in Table A-1 in Appendix 1. As in the previous simulation,
Canadian real income rises with the increase in government spending.
Several differences between the U.S. and Canadian results can be
highlighted. First, prices rise more rapidly in the Canadian
simulation, particularly in the second half of the period. Second, due
to this higher inflation, the Canadian dollar tends to depreciate very
quickly against the U.S. dollar. Third, while the fiscal multiplier is
very low (1.2 in the first year) the Canadian model exhibits almost no
crowding out. This result.is due in part to the assumption that
monetary policy is used to keep interest rates from rising, and in part
to the depreciation of the Canadian dollar, which limits the negative
effect of net exports. Lastly, the policy change in Canada has a large
impact on the United States; this in turn feeds through to Japan. The
change in Canadian fiscal policy has, however, very limited effects on

Germany and the United Kingdom.


COO) SGWN x COM IWHSAN - T) ? 0 ‘s- = PWNS x SZ°O = GONN

C39VaFAV SNIAOH D5) SINSWIYINDIY FAYSSIY IvaIdas JO 13N SLISOd3d GNYW3O {GGNN)

WNYUN + HLOWUN + TwWSWN x GN + TwwSan x SGWN = wun

S3ANRSIY GIXINDI (YIN)

‘aswrn/(sagn + WsWrnvagn) = saWn

Tsun + sunrn = sun

SHINOW 9-5 3LVu 1S3USINI uadva TWwrsuawNod (Sun)

G2UN x $°TT9/9°96 + GUN * HTI9VE'STS = GLUN

ava ‘1S3U3INI ‘11s0d3a SONTAVS | ONV 3WIL (01uN)

82/1 *Q3LVWILSI 99 = GON ster ot sf, 296t ?39NVU
(0) 699° = OHY WN = SHT NV3N SZO° = = psu)

WN) WN) Cyn)
(TSuni901 * 6T9STZ2* + (SYNISO1 x sessse° + TISSTT” = (a9%N)907

CALILNIOI-ISvn®) Jive LS3yaINI Ava-06 (aouN)

~ Sot -

“ste

“oT

“18

“218

“Tre

“oTe


Omeze + % m (d190)730 + dvaNa9 = » x (d949)130

‘SU3NB13N04 NO ‘SHIVTO OTW041N0d WIONWNIA (4949)

101709 + 301109 - 0709 + WXGNS - TYGuNIS + SV4NGS - = d¥jNGD

CALLIN3OI d0G) MOTELNO W1Id¥9 ATid 13N (dv4Nd9)

To0o*o- 200°0 ?HnS

69T'O Osb"O 000°0- (s-)
0° 53 $a 4 Too"o (>)
LT "O £9T°2 100°0 (s-)
024°0 99072 Too"o (2-)
. 2°O 000°0 «t-)
26S°0 Tse°o Too*o- (o-)

AViS-1 243099¥1s AVIS-1 1430991 SV7

S8/> Po alr S% = GON ob 2961 OL %B IZ6T *39NVY

2O5°Z = MQ OT'S- = SHIT NVBH £SZ°ST = “USS 646° = BSYD
C9965") (2$290°S)
£B* 9GT°9S + 2B x LLSS"OH +
(2s150°79) ( 95229")
Te * LSb°SE + «© THSZ0 * T906°26 «+ CC CT)VSNAMND % (1)03N)730) % Z43000V1 +
(966ST0") (szoz"s)
CCCIDVSNAMNS % (1)SU9)730) % T43099V7 + (ADHD - ASKS) * GbEE00" - ZIT =  OONV39
SNOISSINO GNY SUOWT COGNVIS)
s08°0- £92°0 Wns,
Ww YN 218"T wN (ed
Ww vN 2se°T vw Od
Ww YN see°T Ww (s-)
Ww Ts8°T 69T"0 >)
260°T s19°0- = SEL'T 19 ()
220°T 50: LLo't 5 (a)
i620 260°0- —_£46°0 50) a)
202°0 Tito 992°0 Zst°0 (0-3

AVis-1 £430239V1 Avis-1 2130299V7 AVis-1 143039V7 ovT

$8/> :G31VWIIS3 SF = GON ob 2961 Ol ZB £/6T *39NVE
(6°%) STZ° = OHY 262°@b2 = SHI NV3H TOb'S = “U'3°S S66" sud,

( 221660")
bx T2szet"  -

(Tz2e9e") (9859°T)
2 - THe Tes9s°T - e220 * Tesz°OT + (( 1038) * £43099V1 +

96Z8T°T) (£026T"T)
((1)da39) * 2430991 + = CC IJASHS) % T43095V7 + = =GMNAS x 496210" + 6829°S/- = d149

(288%.
2B x 6b6b/

‘S8IN9TIVOA OL SILLIIIGVIT O11041N0d TWIINVNIS (a149)

(dX3NOddS + MASUD - dXId9 - SUD) * £0°O + ((T-)Td9/( T-)TdN9d49 1901 = (M4N39)907

(°B3 “d¥2 ATUd 13N G3LN3ANI) 3LVe HOX3 “AV “1M (M4839)

“Leo

‘SMO1d W1IdV¥3 Y3HLO “S°A'S

- 208 -


L9L 99L 992

692 L9L
826 ObL 682

T6éL 882 9bL wel FOL 2bL

ose <08 862 OL

bye fh8 HEB 662 S6L 90L SOL
mL SbL ddd

Gol Sb

Tse 262 BEL

Tse Sf2 922

Tse 2bL ToL O62

Ise ToL

ste ie £18

o9e ese ese se

310

998 828 Id3dHdIN

sse 958 202 ‘sayin
sso

zse 002 udin
sse £58 102 aan
gs the fhe 0L sEe an
9s8 Imm
218 sunmn
6TL ONE.
206 £45 awWoodrn
£18
bac
9tL TIL 4SLNIN
602 ALIN
ord AsIIN
ESL OTL 4zIN
958 S22 602 90L SOL IIn
OL AddIN
<0L 202 Sd4IN
, 258 £0L O0L ud4IN
se <02 102 addin
802 90L SOL <0L d4In
222 02. asn
262 ‘Wwasson
y aINVESN
£98 © dinvusn
906 252 dWOIdSN
90L ‘w3AdNON
£28 £08 BIZ ITZ 902 889 905 6Lb Tes AdNON
1S@ %y8  § LOddNSN
Oz ‘¥adNSN
Iz 998 158 £8 £28 208
toe 52 LZ EL ZL ISL OSL L2L 92L STL GOL 2OL TOL 489 SOS. O2e Te 99 Non
zzz stz It Aron
222 assn
22 6TL A839N,
s2L 222 4
sel STZ 493090
ee. LeZ T
oz2 902 St
ole <6 MLdSuIN
406 006 948 Sze 48 298 998 S98 E42 242 TLL otIddsn
006 uaddjn

£06 206 128 6T@ O42 L5ZL BbL OTMIIdAN
£06 £28 6b2 sngadin

2e8 £88
ese 092 SAvdTsN
oss see 188 9130
6sZ = ANOTGT4N
oye <8 OSL B2L ‘SNDTIN

02 YIGHNN «NOILVNDS | J1GVINVA


ANSNd3/ASWA = SWI

S$39Iud 226T - S1YOdWI Sd009 *¥"/N W41OL (SHA) “S02

-lb-


=3y-

represents home activity -- either capacity utilization or unemployment. ,
Equation 392 in Appendix 2 is the corresponding equation for Germany.
The idea behind this specification is that nominal earnings on direct
investment should vary directly with the stock of real direct investment
holdings and the price level in the host country. They are also likely
to depend on the level of business activity.

A different specification is used for the portfolio
investment income payments equation. Here we are modeling mainly
interest payments, and therefore the explanatory variables are the
short-term and long-term domestic interest rates. The basic
specification is:

PW ag + ay(L) RS + ag(L) RL

where MSYNDV is non-direct investment income payments, FLP is the stock
of real non-direct liabilities to foreigners, RS is the short-term
nominal interest rate, and RL is the long-term rate. The left-hand-side
variable is simply the imputed interest rate on portfolio liabilities
paid to foreigners, which is modeled as a distributed lag on
home-ccuntry interest rates. Equation 393 in Appendix 2 is the German
portfolio investment income equation.

The remaining item in the current account on the import side
is transfer payments. In some cases these flows are broken down between
government transfers and private transfers. Transfer payments are

expressed as a function of nominal GNP or disposable income, as in


-61-

these benefits do come at the expense of a larger increase in price

inflation.

Monetary Policy Simulations

Table 8 presents the summary multipliers for the monetary
ecntraction simulations. The table shows the effect on real GNP and
prices of a 100 basis point increase in treasury bill rates, for the
United States, for Germany, for Japan, and for all five MCM countries
jointly. The results can be interpreted as measuring the degree of
neutrality of money and the extent of foreign linkages in the MCM.

This summary table shows that higher interest rates tend to reduce real
income, as expected. In the U.S. simulation money is not neutral in the
long run; this is also true of the foreign models taken together. The
spillover effects of U.S. policy on other countries are substantial,
while again, economic policy actions abroad have much smaller effects on
the United States.

Table A-11 presents more detailed results of the U.S. monetary
policy simulations. The main channel through which monetary policy
influences the model is through the effects of interest rates on the
components of real expenditure. In the U.S. model, investment -- in
producers' structures, producers' durables, and residential investment
-- is a function of the user cost of capital, which in turn depends on
the real interest rate. Consumption is also directly influenced by

interest rates. Furthermore, in all MCM countries the exchange rate is


662°0- HS

£22°T <£82°0- cl)
859°0 9TT"O- (o-)

Avis-1 143099V1 ov

S8/> <Q31VNIIS3 £8 = GON Bb 286 OL TD 296T *39NVY
(92) 22° = OH $6°E = SHI NVBN TSO" = “Y°3°S 266° sud
(9eTI2"s) e90tz-4)
sb * 222880" - 2b « <oT9O0T" =
£9062") (12006 *2) (6226°E)
TR * S6090T° - (dS/VSNAMND)901 * GEEEEE" + (THD - SWILUD) * os6Gz0" +

(6¥S%"°sT) (9852 ,
COCIIVSNGNSS 1907) * T43039V7 + = (0 T-)d9/( T-)dd19)901 * TZTOZZ" + 90S¢E°T = (49/d019):9071

SLVAIUd - ‘SIN3GIS3U re) a3H ‘$1IS0a30 BHI | (aai9) “2b

sT0°O- ET.
Ww WN 988°s elo
Ww. vN 009°S £22°0
se 00° 9TL"6 g0s‘0
ves" > TIo*o- Tez*2 Tsz°0

divis-1 2430391 AViS-1 133039V7 on

s8/> ier re 98 = GON % 296T OL 2B TG oN
gs2° S66 sud

(TZ) £29" = OHN SHT NV3BH STO" = “ya's
(60T2S"9) (£9825°2) (S9Z8T"6)
<b x ¥SbS50° - 2B x* 615820" - Td x S0s80" -
(9S%b*2)
CCTISUD) * 243039V7_ + = (CC I)VSNdN99)901) % T43099V1 + = 225°%- = = (d9/d009)907

SLVAIYd - SIN3GISIY AG G13H SLISOd3O0 GNVW3G (dd9) “22>

S8/> :Q31VWILS3 28 = ob 2
(£6) T2Z*) = OHN G9Z°E = SHI NvaN ¥T0"

(y9sot"s) (ossos"9) (969°)
T2990 * 694950". +  AVSUD * OBTTSO" - (d9/VSNAGAD)9O1 x SSEZ0T' +

(20s65") (99622°L) CIITes*)
(.dS/VSNAMNS 1901 * 24T6Z0° + = ((o-)d9/( >- )4NID)INO] * £9245" + HbzBS9"

=  ¢d978NnI9

BLVAIYd - SIN3GIS3Y AG G13H AININUND (YNID) “12>

S3LVSIUISV AYVLINOW V°III'S

IPRA ‘WISNYNI4 IILS3WOG “III'S


£59 629 285 945 295 0S 46h 2 Node
959 669 Sb9 SE9 459 £59 dXadr
229 929 429 woadr

Id3dr
<19 Taravdr
9 229 L429 £29 609 G09 409 £09 985
US S95 255 £65 OG IfS 625 L2G 929 O2S BIS JIG 1G 21S TIS %b SG2e s2e

de
029 HLOr

G59 655 IIS 6b MN
229 029 22s dOnt

289 1Z9 aLovaNr
189 Gosv4Nnr

ze9 «089 «(149 ovine
£89 649 029 ‘SVANr
665 INXL3NT

909 zur

909 209 THe

009 SiS eS ANVSLAT
SLS 99S) = AdNVULWE

995 19S AASHE

89S AASHE

945 £95  — AGNASHE

414g 29S AGASHT

Ws 045 699 ASH
L6G 815 695 19S QAAOSHr
99S AOSHT

465 6959 995 99S AdOSHr
465 699 995 ASOSHE
465 L445 699 2495 GAAGSHr
865 = -YRAOPWT

965 95S SSS aAour
m9 459 OLS LSS 995 ASHE
865 245 OLS LSS ASOWT

629 829 665 45 265 Tog SIS INSOWT
SoS LoS AT

9¥5 = YATOOW

$26 LoS 9G osu

Ws 995 255 Sur

19 069 air

89 S999 aid.air

099 9 at3dLor

099 goddLIr

989 «£89 199 099 aad.

699 £59 exaLar

Th9 069 659 959 Fils

069 829 L459 959 ir

659 sae
s>9 £69 TIS u

S>9 ~b9 «OS UNIT

G09 629 8f9 2S dr

969 Ine

2ss 25  VSNAIIC

Tzs ozs sts sts AlIC

ozs Tir

25S 61S = WSNAddIT

ots SIS IS sts AdsIC

<9 LTS TIS udsIr

9 «ZIS OTS wNndaIr

eis LIS dar

“ZS 285 VSNASSIF

GS 29 IsS IS SIS aAgsIr

2o5 ToS Is¢ s4Ir

e299 «159 ae

225 0&5 YSNAST

GES O£S 625 IS <IS Ast

86S vesor

$>9 UNINVUOT

825 259 SIS WSNAdNOT

629 S09 09 £09 SIS IS 215 905 64y I2e AdNOr

<2L 269 $22 1oddNSr

G68 £68 68 269 8£9 629 GS9G 259 GOS HS OS 265 ToS OFS EIS OTS S0S O2e Nor

92S SES 3309°

9xS L2G 4g3asr

109 965 weer

205 ToS 629 or

£69 959 Misusar

569 959 459 599 = M14SUdT
$69 959 O85 M>4SYdC

oS
969 269 969 MidNSdir
869 269 $59 dX3NSdir

Let Wa3@HNN NOIL¥Na | JTEVIUVA


s8/> iG31VWIIST >F = BON $8 2eer ote ze eeet ?3ONVa
(2°42) S26" = OHY 298° = SHIT NVBH 220° = sud
(6ZE9E"<)
£b % 420220" -
(469299°) (Z£o288°T) (6T09S"2) (es09Ts")
2B % 986600" - Tb * 68£2TO° +  (OMAXd49)901 x B9sese" + ZTSb40°- = (139 * ANDWd9)907

CALTIN3QT-ISvne) a0NT anva ‘LINN ‘TuodHT (anond) “Iso

S8/> :G31VWILSI IS = GON 8 2861 O1 Tb O46T *39NVE

(9°21) 986° = OHY 90° = SHIT NV3N £10" = *U'3°S 206° = BSYD
(969562 °) (2T988=°) (2Ts2Z2"T)
<b % 496000° + 25% £95T00" - TB x Z2£2b00" +
Cxgs2e"o) (82626°T) -
CCT- MLsxXd49/CT- 1139 % (T-)HOdd9)901 * 9608ZT° -  (WOGd9)901 + SBbHS0° = (ANSXd9)907

X30NI 3N1VA LINN ‘1woaxa Canexe5) “OS>

S8/> :G31VWIIS3 94 = BON 8 Z296T ad 2 526k oN

(82) 626° = OHY 980° = SHT NVSN TO" = ~
(e6e6Ts") (959b6L") Cxgese"T)
sb x 099000" - 2B TS6T00" - Te x ssezoo" +
(L998T"b) (86069°2)
CCT MLdXdd9/CT- 139 3% (T-)HOOdDI901 * 6HB6ZT" - (WOGdD)ISOT + T9Z6b0° = (dId9)901

XZONI 33IUd WIULSNONI (dIds) “6bb

TIZ"o0
VN vN SIS" bz Bb2°0
VN <69°L2 Ts2°0
gs0°T os £59'T 6" £1Z°8 6ZT'O
Tss"0 8100 205" 02°0 6b2°0 2<0°0

divis-1 £43099V7 dvis-1 243039V1 AVis-1 143099V7

S8/> ?O31VWILS3 _9E, = GON 26 286T <26T *3ONVE
(8°682) 296° = OHY 299°2 = SHT NV3W 400° = “4°3°S T= O8SYD
(9TZ00°2) (x9992°E) C1ssszZ"

<b % 292200" + 2b x z256>00° + Td x 982000" +
CCCT-TINN9/T)) © £490390V1 + = (CCC )AYNIND)9OT - (CI) TIONNdS)901)) % (I) Z43099V7 +

(929"s)
CCASNIND 901 - (139/22110d0)901) * ZZT6TO" +

COCCI ASNIND 1907 = €CIIM9I9SOT)) % T43099V1 +

(s£28° Tt)
§2°O * (CCP IAYNINDISOT = O fs- = FINNS + EZEb°T- = (499907

wouvi43a NOTLduOSEV €

$30Iud ‘V'AI'S

A1ddns ONY $391ud “AIS


(WS) S39Iud 2Z6T - ALIINIGT dao aaTug aNwLSNOD NI_WU3L IwNdIsay (90x43) cava
waluvne T yOd - II OT = J1TAVINVA AWNNG (90X3) Tsteq
SULUVNO SNINIVW3Y T1V 404 - ibte NI O°T = 37aVINVA AWWNG (90x43) Ittea
YaLYVNO_T YOd - 808 NI O'T = J1GVIYVA ANNO (90x43) Ty08a
SUILUYN® ONINIVW3Y T1v YOd - £008 NI O°T = 3TGVIYVA AWHNG (90X3) Isosa
YaLeyNO T YOd - 2008 NI O°T = JTGVIYVA AWW (90x3) Tz08a
SUaLUYND ONINIVNY WIV YOd - TdO8 NI O°T = 31aVINVA AWHNG (90x43) Itoea
SUALUVND ONINIVWIY WIV YOd - ZD6Z NI O'T = 31@VINVA AWHNG (90x3) 12620
SUBLUVNO ONINIVWIY Tv YO4 - Tbe NI O°T = 31GVINVA ANNO (90x3) Iteza
YaLavN® T YOs - HBLZ NI O'T = FTAVINVA ANNNG (90x4) Tozza
SUALUYND ONINIVWIY TV YOs - $822 NI O'T = 3TGVINVA AWHNG (90x43) Iza
waLUvNd T YOs - <BLZ NI O'T = 31GVINVA AWHNG (90X43) Ts22a
SUALUYN® ONINIVWIY TV YOs - $992 NI O°T = 37aVIYVA ANHNG (90X43) 19920
YaLwvND T YO - HOSZ NI O'T = 31GVIYVA AWHNG (90X3) Tysza
SUALYVND 2 Od - bdb/ NI O'T = FTGVIYVA ANNNG (90X4) 2ob20
WELWYN T YO - 262 NI O'T = 31@VIYVA AWWNG (90x4) T2>20
YaLavN _T YOI - THbZ NI O'T = FTGVIYVA AWG (90x43) T1oza
SUBLUVND SNINIVWSY TV Os - [Bd NI O'T = 31SVINVA AWNING (90x3) Iteza
. YaLYVND T YOd - <2 NI OT = JTGVIYVA AWG (90x3) Tbsza
Pere) T ¥Od - £bS2 NI O°T = J1GVINVA AWNNG (90x43) Tss2a
SUALUWND ONINIVWIY Tv YO4 - 2BsZ NI O'T = 31GVIYVA AWNNG (90x4) rzsza
SYaLUyNd SNINIVW3Y WWW Od - TOSZ NI O°T = 3TGVIYVA AWHNG (90x34) Itsza
YaLYWND T HOd - 6H2Z NI O'T = J7GVIUVA AWWNG (90X3) To2za
waiavnd T YOd - £b2/ NI O'T = 31@VIYVA ANHNG (90x43) Ts220
wa1NvN® T YO4 - 2024 NI O'T = 31EVIYVA AWNNG (90X34) Tezza
yaluvn® T YO4 - TO2Z NI O'T = J78VIYVA AWWNG (90x3) Ttzza
MaLUVNS T YOs - STZ NI O'T = J1GVIUVA ANHNG (90X34) Totza
MaLNvN® T YOs - SBTZ NI O°T = JIGVINVA AWNNG (90x43) Tstza
UWaLNVND T YOd - 2004 NI O°T = J1GVIYVA AWWNG (90x3) Tzoza
SUBLUYND SNINIVWIY TV O04 - 2D0Z NI O°T = 3TaVINVA AWNING (90X3) Izoza
‘SU3LYVND_OZ NOs - TOOL NI O°T = JTGVIYVA AWHNG (90x3) oztoza
SUILUVNO SNINIVWIN T1V-YOs - TOOL NI O'T = 37aVIYVA ANHNG (90x3) rtoza
SUaLUYNO = NOs - 9 NI O°T = 318VIYVA AWNNG (90X43) £6690
SUILUVNO ONINIVWIY TV YO4 - £669 NI O'T = 37GVIYVA AWHNG (90x43) 1690
‘WaLYVND T YOd - $849 NI O°T = JTavIavA AWN (90x43) 1190
SYZLYYND 2 OI - £O49 NI O'T = FTGVINVA AWHNG (90x43) 22290
‘YaLYVND T YOs - £099 NI O°T = JTGVIVA AWNNG (90x43) £991
SUILYYNG_9F YO - TOSI NI O'T = JTGVIYVA AWNING (90x43) 9sTS90
SUALUYNO ONINIVW3Y T1V Od - $069. NI O'T = 37aVIYVA AWWNG (90x3) Ib>90
YaLwyNd T 2bb9 NI O°T = 31avIYVA AWNNO (90X43) 12590
SULUYND 9 £BS9 NE O°T = 31gvINVA AWNNG (90X3) 9s590
aLYYNO T Tds9 NI O°T = FTEVINVA ANNA (90x43) T1s90
‘SUITLAND SE 2b29 NI O°T = areviuva AWNOG (90x34) £2290
SYaLUYND OF Ld MI O°E = 31avIUVA and (90x43) ogto9a
SUALYYND LE I O*T = Teviwva Asay (90x43) 2451090
beers wad SAva JO ‘aauN (90x43) bSAva
(VSN) Rd ANAWYAD = AXOUd 3WOINI 31GVSOdSIO ST WSNAGAD
$39TYd INFWINI - AXOUd 3WOINI_ITGvSOdSIa at
(VSN) S39TYd INFN - JWOINT F1GVSOdSIG IWNOSYId or VSNAdGAD
$39IYd 2261 - AXOUd 3WOINI 31GvSOdSIO oT aad
S1d13939u YZISNVUL TWLOL 4c ANVULXD
NOILYNOA SidI393X SWOINT INIWISIANI NI ADNYd3YISIO WIIISILV1S (90xa) WAAASXD
S1dT393Y SWOINT IN3WLSIANI SL ‘AAS
SAdI399U_3WOINT IN3WLSIANI_193NI0-NON Oz sAGNASXD
S1dI3939Y SWOINT INSWLSIANT 193410 69 AGASXD
WLOL - SISVG dO@ - S3DIAYIS 4O S1NOdX3 2L ASX3
S39IAUIS YSH1O 40 SLYOdX3 89 ‘AOSX:
$39IUd INIUUND - SISVG_dO@ - NOILvNoI S1YOdX3 SGOO9 NI AINVd3YISIO IWITISILVIS (90x43) raVvAaxd
$30IUd INFMND - SISVA dO - SLYOdX3 SOOOD NVIGVNVD IVLOL oS ASX?
$39IAN3S ONY SGOO9 40 SivOdxa .7a ASSXD
(YSN) S391dd INJWIND - SISVE VIN - SLuOdxX3 9L SAINSOXD
(VS) S39TYd_1IN3YYND - SISVA VIN - S1YOdx3 LL ‘AINSOXD
CWSN) S39TUd 2Z6T - sisva VIN - SLuOdx3 eZ ‘SNINSOXD
VS) S39Iud 2Z6T - SISv@ VIN - S1uOdxa INSOXD

C eZ
NOILYNDA WNITOYLId JO SLYOdX] 4O anv | NI AQNVd3YISIG WITLSILVIS (90x4) ‘W3A709X9
MIVA - WNITONL3d JO S1¥Odx3 1s A109X9

(YSN) AVG Yad STauuvE NOTTIIN — Wiatowtad Jo Sioa — (90K3 qeax3
NOILvNOa S1YOdX3 SOO NVIGVNYD W101 NI AINVd3YISIG WOLISIIVIs  — (90X3) 439X9
$39IUd 2261 - S1¥OdX3 SGOOD NVIGYNYD 1V1OL SS 9x2

4S3Y ONIGATINI) SLHOT3M 3OVYL LYOdNI NVIGVNVD = (90X3) AZHIMD

4S3Y ONTGNIINI) SLHOTIM JQVYL LYOdWI NVIGVNVD = (90X3) YZWIM3

4AS3Y ONTGNIINI) SLHOTIM JQVAL LYOdWI NVIGYNVD — (90X3) OZHIMD

4S3Y ONTGNIONI) SLHOTIM JQVaL 1YOdWI NVIGYNVD = (90X3) CZWIMD

4S3Y SNIGNIINI) SLHOT3M 3QVYL LYOdHI NVIGYNYD = (90X3) 9ZWiM>

4S3Y ONTGNIINI) SLHOTSM FOVYL AYOdWI NVIGYNVD = (90X3) 32W1MD
ONTUNLSVANNVH NI_3LVY 39vM ATYNOH 2ut MO

BLVY_ LN3WAOTdW3NN sit i)

AVIINSGISIY - 3LVAIUd - IW1Idv) JO 109 y3sN 22t yond
WILIN3GIS3Y-NON - 3LVAIUd - TWildv> 40 1S09_Y3Sn 92 yNonD
3NN3AIY IN3WNU3ACS W101 02 ALD

BHOONT 3LvuOdYOD NO Alva KVL IvMRNY = ( 90%3) DAULD

BWOINT 40 31Va GYVONVIS — (90X3) cre)

wo12as BIVATNG_ Of SUS4SNVL INSHRSADS 6t ANVYLD

9TYd ANIYYND - 1IFYTONI - SaXvL i<] AGNILD

SHOONT_INSKISAANT VLDL. S3NNGASH ANSHNGSAOD — (90K3) AIL)

SAN3OQISIY AG 013H SLISOd3O 3WIL 40 YO01S 06 (Te)

SUINSTIYOS OL SITLIVIGVIT WYIL-LYOHS FLVATYd JO XI0LS Oot us
NOILINI430 1 NOTLYN®3 | DINOWINH

~ 202 -


aqyeu Tenuue
qe ‘peqysnfpe ATTeuosees
qou ‘seoqtud queuuno ‘sqyun
Aoueusnd TeOOT JO SUCTTTTQ - (qunoooe queduno) II 404oes
aqeu Tenuue
qe ‘poqysnfpe ATTeuosees
‘seotud 2161 ‘satu
Aouauund TeooT JO SUCTTTTQ - (puewep o74sem0p) I 4040es
zpaqou estNuayyo
SseTUN SMOTTOJ Se due YUSMeuNseew UOJ SsqtuN puepueys SUL
*7e407 BuTeoTPUT ula UITM ‘pasn eue eaoge se sapoo AuQuRCd ous SUL

sueTTOp *S'f queauno
ut ‘f Auqunoo wous 7 Auqunoo Aq spoo8 jo squodut wACTWa

SueTTOp *S*f queuund
ut ‘f Auqunoo 04 J Auqunoo wous spoo8 Jo squodxe wAfTXu

ISMOTTOJ SE peueu oue eTQeTUeA MOTI epeuy TeveqeTIA oul

aqeu ATuaquenb udu

syseq squnoooe suoout Teuosyeu wVINu

peyenfpe ATTeuosees you uVSNu

peysnfpe ATTeuosees uVSu

SueTTOp uy peunseoul udu

anqTea TeuTwoU udu
teue sepod UOMMOD aulo0s *quoweumseou jo sTseq
Jo sqytun oy} ayeoTpuy OF pesn seu; jewos eue sueu aTqeyuea e& Jo 99 {eT
qseT euL *qUAalIZSeAUT oqeatud pextj TeTquepTseuuou uejTpeued St YNddIO
pue ‘quemyseaut pexTs “x'N ST dIg ‘eTdwexe uog ‘oTsyoeds eyq 07 Teseued
uy Woug Butpesdooud ATTensn sueqqeT Oud UTM ‘eTQeTYeA ey SaTuosep
emeu ey} JO UOT AUOd eTPpTW eyL *AuQUNOD eYy eJedTPUT OF OMeU aTqeTueA

aU4 JO-uezI@T YZuTJ eyYy SesN UOTJUEAUOD BuyWeU eTQeTUeA oul


VONS + 901703 + 101703 + Twaunoa = Iveaa

JONVIva OISva ( 1vEaa)

dN9d3/10L103a * SZ°O + (T-)101783 = TaLTU3

SSIATII@VI1 19494IG JO NOO1S Wau (1011)

(94dN9dI3/95N94) % 301703 * SZ°O - (T-)90L7N3 = 301743

SWIVID 1934I0 40 NOLS Twa (201183)

s2°O * 1011G3a + (T-)10173 = 10173

‘SU3NDTSUOd OL S3ILIVIGVIT LN3WLSIANI 193uza 30 3901S (aia)

s2°O x 901703 - (T-)90173 = 201173

SU3NSTHUOS NO SHIVII INSWISAANI 193¥T0 40 ¥D01S (90113)

S8Z/T_ Q31VWILS3 = 25 = GON ob seer Oty TD 596T_ ?3ONVY

9£°2 = Md WN = SH1 NV3W %8T* 22 osua
(s°s)

S1aL103 - ((T-)M183)790 x bySObT" +

9)

(ts) (972) Cs"
(4143)730 x Z99TST" +  (G3N)790 * TZ8690° - VSNAddIa x 6b8290° +

(2)
£4690 x Z21eTZz" +

if (s°t) (or) (a)
£D % 925260" - 20 * 695860" + TD x 669TS0° - Sz990°- = 01703

SWINOTNOI OL SJTATITGVIT ANGMISIANI 193470 NI ONVHD (101103)

84/1 iQ31VWIISS 09 = GON scot oe Te T96T ?39NVY

69°T = Md WN = SHI NVA 22° = ‘was S26 osu3
(y's) td (27%)
Ils2 * 6£855°2 +  OSTO9G x B92E9°T - adda x ITSZG x Te9zz° -
(HT ce" a
Qdyd43 x OSTO9G * 9STTZT" +  GdNdJ3 * BWIL x T@szZ00" - egze22° =  ANI33 x (S901103 - 301703)

. SU3N9IFUOS NO SWIV1D IN3WLS3ANI 193NIG NI 39NVHD (301703)

“TOL

“00s

“662

"862

262

962

"962

SAILITIGVIT ONY SWIV1D IN3WLS3ANI 193NI0

ABWVW WIDNUNIS TWNOLLVNUSINI “A732

- 99 -

“WATT


dNSI/AdNSD = dNEdD

49NGOUd IWNOILYN SSOYD 40d wOLv1430 | (aNS3) *90T

s8/> 2 Q31VWILS3 os = $8 Z86T OL 2B OL6T *39NVU
(8°60T) S86" = OHY 26° = SHT Nan £10" = "Ya°S 966° = BSYD
(xge2ZT") (9289°0T) (2s69T°T)
CCT= IMWAXd43 1901 % SZE0TO" + —(MNAXdI9)901 * $5629" + HF22zz° = (139 * ANONdIISOT

X30NI 3N1VA ‘INA ‘LWOgNT (anand) *<0T

S8/> ong tvarisa 6% = GON ob 2961 O1 TD £46T *39ONVY
3S 968° esa

(x°oT) $28" = = SHT NV3H 420° = “Ur
(1969ST") (99ET0°T) (96>£6°T) (£29s5°T)
<b x £60T00" + 2b * 425600" - Td * 9Z6TTO’ + ((T-)JMLINNII/T) * 5950S" +
(69sbs"2) (o6T9=°T)
CCT- MLdxXd49/( T- )I9D % (T- IWOdd9)901 * S6Z58Z° - (WOdd)901 + SZ9T#0" = (ANSXd9)S07

X30NI 3nTvA LIND 1w0axa, (Anaxd3) *Z0T

YaIdIdd + (d3)901 = (1dIdd)S01

XFQNI 391Ud Y3IWISNOD (Iddd3) * TOT

(s-)d2 * (T + 00T/dx3d9) = Tdd

ALVY NOILVISNI GV3HV-GOIY3d-3NO YO4 AXOUd (Td) *OOT

§20°0 169°0 tWNS
ets'T ot0"o £SZ°T 1s2°0 «t-)
Os6°T st0"0 $86 °2 sbb°0 (o-)

4vis-1 2430397 4vis-1 143039V1 ov

g8/> *G31VWILS3 Ob = GON Td s86T OL sf, Haan EN

(8°S%) 66° = OHY ZTb* = SHIT NV3N 900° = “Ud
(99222°T) (estse") (ezzes2")
£0 *-60TZ00"° + 26% 59ZT00" + Td x SOH000° -

@5EL°T)
CCCCT-JYNIND 3S13 90 - 3000000°T N3HL O 37 (T-)YNIND JI) + 1907 * (T-2d9)907 x deoLoo" +

(TIONHd3 1907 %* £2°O + (((1)139/(1)ZLZ110d0)901) * 243099V1 +

(99€22°9)
CCCIIM3)901) * T43039V1 + 8b8b6°- = (d3)907

¥YOLV143d NOIIduOSaV (d3) “66

$39Idd V'AI“D

AlddNS ONY S30TYd “AI"9


S8/> :G31VWIIS3 £5 = GON 9D 3ONVUY
(2£°E) 899°- = ZOHY (9°S) 458° = OH 9TE"6- = SHT NWSW 650° bsu3
(8E2Tb"2) (ST689°2)
Bx SObSE0" - ZB x 856840" -
(9599279)
TD * Lb200T° - (L0ddNOPID01 + (CC TIdA/CIDI3C * CIVANSXdE)901) * T43099V1 +
(To96T*S) [S774 19) C9TIE"b2)
(4TIN - IIN) * 8T2Z00" + (dNONISO1 * S4SS8°T + £9H°2Z- = (CIP ANSXdE)/ANCXI901
2L2°T-
YN vN
vN YN
vN VN
vN VN
vN vN
YN VN
YN YN
N VN
osZ* £8" 0-
oT 6S%°0-
Avis-1 243039V1 AWIS-1 143099V1 ova
28/7) :Q31VWIIS3 _ 25 = BON $b O86T OL TD 896T S3ONVY
20°2 = MG YN = SHT NV3N 680° = ‘U°3°S T9Z° = BSYD
(CCL)dWOId9N/CT TIS * CIVANXd9)90T) x Z43090V1 +
(9999E"s-) (80TSo*T-) (86EL5°2-) (9T892°2)
<b x LOTT’ - 20% 920TSO" - TB * 8E2Z80" - (4NNSGAGN)9O1 = £SS6T°T +
(€(N99)901 x EH°T - (dNIDIIOI) * SZ°O +# ((CT-IddN/(T-1)I3S % (T-1)ANSXd9 1901) * T43I0IIVT +
(yz9b6°2) (22809°9) (12956 "S-)
CCT-9N99/CT- 1'INI9O1 * 2ZT606S" +  (dANONIDOT * $0646°T + T259°2T- = ((139 * ANSXd9)/ANSX)9O1
(10a) *S*A 3HL O1 S1¥Oaxa S009 NYHUID (ANSX)
268°0- Was
oeb°T Osb"0- a)
T9S°T 295°0- (o-)
ivis-1 143099V1 ov1
s8/> :G31VWIIS3 TL = GON ob Zeer Oty To S961 +20NVa
(6°9) 289° = OHY £80°T = SHI NV3H 60° = Tse* = o6Sud
(96£56°T) (196ST"T) (98562") (£20E2°T)
<b *% 065200" - 20 * 662620" - IB * 606460" - BWIL * 8596200" +
(16026"5)
CANNSGAGN)901 x ZOOGO°T + = (((1)dN7( 19133 * (1)ANSXd3)901) * T430INVT +
(2Tz92°T) (22H2°T
(ANONIDO] x SEZET*T + 9ZL06°Z- = (133 * ANSXdI)/ANIX)9OT

(200) “S‘N 3HL OL SLYOdX3 SGOOD *W'N (ANIX)

- OST -

374

2sL

TEL


-yo-

in the different models, has a negative impact on prices in all cases
except the United States, where the effect is very small. (Unemployment
also affects the price level through its effect on nominal wages, as
described below. In full model simulations this effect offsets the
perverse coefficient in the U.S. price equation.)

The export price is determined with the same theoretical
framework on the absorption deflator, although the econometric
implementation is different, as shown in equation 450 for Germany. The
factor costs are represented by the domestic output price, and the
markup variable is the ratio of domestic prices to an average foreign
export price. This last variable is intended to capture the effects of
competitive pressure from other suppliers.

The import unit value is linked to a weighted average of
foreign export prices by a bridge equation (equation 451). The
coefficient on foreign prices is less than 1.0, which reflects either
differences between the composition of each country's total exports and
their’ exports to Germany, or incomplete pass-through of export price
changes to German import prices. This result also occurs in some of the
other country models, The implied price of German nonoil imports is
computed from the aggregate unit value in equation 456.

The German model also contains equations for producer and
consumer price indices (equations 449 and 452). These prices are
somewhat auxiliary to the model, since they do not correspond to

separate goods markets in the MCM. Producer prices are linked to the


UNITED STATES

Real GNP (%)
Price Level (%)..
Int. Rate (ST)(+/-) oe
Exch. Rate (FX/US$)(%)..... -
Current Bal. (US$,B)(+/-)..

CANADA

Real GNP (%).....----eeeeee -0.

Price Level (%)
Int. Rate (ST)(+/-).
Exch. Rate (US$/C$)(%).

Current Bal. (US$,B)(+/-).. -0.

GERMANY

Real GNP (%)..seeseeeeeeeee -0.

Price Level (%).....
Int. Rate (ST)(+/-).

Exch. Rate (US$/DM)(%)..... 2.
Current Bal. (US$,B)(+/-).. 0.

JAPAN

Real GNP (%)....-eeeeeeeeee
Price Level (%). .
Int. Rate (ST)(+/-)........
Exch. Rate (US$/Y)(%)...... -
Current Bal. (US$,B)(+/-)..

UNITED KINGDOM

Real GDP (%)....
Price Level (%).
Int. Rate (ST)(+/-)........
Exch. Rate (US$/PS)(%)..... -
Current Bal. (US$,B)(+/-)..

coooo

NwooO

wNooo ULoouw

OFRUH

-78-

esess
wWwrooo

essos
HPUPED

PeRPE WONRRO

HaAONN

-0.
-0.

-0.

esses
wWwnNooo

esos
FEPNFND

PeRpeR CUrRRR

uoovs

-0.

-0.
-0.

-0.
-1.

-0.

NOTE: Amounts shown are deviations from
(%) = percentage deviation from baseline
(+/-) = absolute deviation from baseline

esses

essos

1 #01 #01 0.
1 #01 #02 0.
1 #02 #02 0.
5 -1.6 -1.8 -2.
1 1.3 1.4 1.
1 -0.1 -0.1 -0.
1 0.1 0.0 -0.
1 #01 01 40
1 -0.1 0.0 0.
1 -0.1 -0.1 -0.
9 -0.8 -0.8 -0.
2 -1.6 -2.0 -2.
o 10 #1.0 1
5 5.0 5.6 6.
5 -0.9 -1.4 -1.
0 0.1 021 0.
0 01 01 #0
0 0.0 0.0 0.
2 -0.2 -0.2 -0.
7 0.9 1.1 1.
1 #01 #01 0
5 06 07 0.
2 #0.2 #O.3) 0.
5 -0.6 -0.7 -0.
4 0.5 0.7 0.

the baseline path.

PRROR

OrRORD

NONNO

Vor

CY4wWOR

70.
-0.

-0.

-0.
72.

72.

reese
worHee

reerse
HoOorROR

RPNREN ONWNO

WwiIoMw


-10-

The modeling of the international accounts in the full MCM is
much richer than in the prototype model presented here. In the full
model, goods trade is disaggregated by region. Trade in services, and
direct and portfolio investment income receipts and payments are all
modeled separately. Consumption of and trade in petroleum are also
modeled, although these equations are auxiliary to the main model, since
the goods trade equations are for total trade. The disaggregated detail
adds a great deal to the empirical properties of the MCM, but the basic
theoretical structure is essentially the same as in the model presented

here.

Money Market

The money market is modeled with the private non-bank demand
for money (equation 7), and banks' demand for free reserves (equation 8).
Together these generate the demand for the unborrowed monetary base,
which is set by the monetary authorities. (This definition of the base
ignores currency holdings.) In the full MCM money demand is
disaggregated into currency, demand deposits, and time deposits.

The bond market is not modeled explicitly, since with only two
assets (money and bonds) it is redundant. For given nominal income the
nominal short-term interest rate clears the asset market. ‘(There is no
equities market in this model.) The nominal long-term interest rate is
determined by the term structure equation (11). Since long- and
short-term bonds are assumed to be perfect substitutes, the long-term

rate is the cumulation of expected short-term rates, which are modeled


-3-

which the MCM is based. Section III describes the actual specification
of the equations in the MCM, and summarizes the key estimation results.
Sectior IV presents the results of simulations of fiscal and monetary
policy actions, and exchange rate and price shocks, in the MCM.

The core of the paper is in the two appendices. Appendix 1
presents the detailed tables for the simulation exercises. There are
four sets of simulations: a fiscal expansion, a monetary contraction,
an exchange rate market shock, and a price shock. Each simulation is
run for each country alone, and for all five together. The simulations
are set up so that the results may conveniently be expressed as
multipliers. The effects both on the home country and abroad are shown.

Appendix 2 is the complete listing of the MCM. The equations
are listed first, followed by a cross-reference table and a listing of
variable definitions. The equation listing includes the regression
results (coefficients, t-statistics, and summary statistics) for each
estimated equation. Appendix 2 is printed separately, in Part II of the

paper.


“S08

gga + ¥n3n = yINN

CTSan «S3NTI

“508

96L°0 Wns
o08Z'T £It-o (s-)
0£0°2 TsT‘o Oe)
069°2 02°0 (s-)
esT"9 2eT'o (2-)
062°T oTT'O (I-)
00°0 200°0 (o-)

dvis-1 143039V1 ov

28/6 =:Q31VWILSS =o =
TI

GON =—2B T86T OL TH S26T *3ONVY
VN = SH1 NV3H SSTO" = ‘u’a°S g sud

CWN) 26TS* = ZOHY (0) S6ZE°T = ON 908° =
(9g°2p
G1UN * 68TTO"- - COCDIMNAZCCIIAINSSHN + CLIAINSSXN - (I)JAdNON))901) * T43099V1 +
(99°2) C98T"02)
@OTUN * 68ITO" - 95962°T- = (MNA7G.111}907

SAN3QIS3Y AG G13H SLISOd3d 3WIL (iN) ‘soe

- £9T =


AGNASH] + AGASH3 = AASHT

SIN3WAVd SWOINT INSWLS3ANI (ASHI)

S8/> iG31VWIIST 26 = GON Ib seer oS Te eee, *apNvl
= OHY

(9°S) 19s" 92°- = SH NVBN ToT"

8095°Lo) (yb.s"eb)
(AdN93 1907 x! vOSTo*T + ZS60T°9- = CANVY.LhI3 1907

602°0 ‘9ST'T ?HnS
600°Z 020°0 YN YN (Z-)
600°2 6£0°0 VN Ww (9-)
600°2 690°0 VN YN (s-)
600°2 620°0 (y-)
600°2 860°0 g0L*> 9IT"O (£-)
600°2 ett S02" T£2"0 (2-)
600°2 SET"O 02° L95°0 (I-)
600°2 SST-O 02° 296°0 (o-)

AVis-1 243099V1 Avis-1 143099¥7 ov

s8/> ong Matisa 6S = GON i) zeer ote Te S96T_ "aN
(£°E) oto" = = SHT NV3H 620 “2rs

Stas wD
COOT/(T)TH3a) * 243099V1 + = (OOT/( T)SUA) * T43099V7 + 82£2T0"- = —_ d143/AGNASH3

‘SLN3HAVd 3WOINT ANSHIS3ANI ‘1oaura NON (AGNASH3)

S8/> 'G3LVWILS3 09 = GON Te seer OL TD 8961 :39NVa

(1°82) 686° = OHY SS8°2- = SHI NVBH £22 was $66" = BsyD
(89290°T)
(NMA 1907 * 286995" = - ((dNOd3 * 101783)/AGASHII907

864°0 ths:
£95°0 9ST'O (T-)
$08°0 bye'O (0-)

ivis-1 143099v7 ow
’

S8/> :G31VWILS3 99 = GON i) zor ot 2B 9961 ?39NVY
(UT) 991° = OnN seZ°E = SHI NVBH SIT" = 20S" = 8SYD
CCCI Ma§9a/ (CT M4d439 1/01 1d3)907) Taz039V1 +

(2129; J (9S2£2°2)
(GN93)901 x 8bZ9T°"T + 6g68T'z- = ((M4833/M44d43 /AOSW3 901

S3OIAaS awaHLO 40 S1NOUMI (CAQSH3)

SUBISNVUL

- 6b -

“912

“sT2

“o1z

acd

“2T2

AYAS 40 SLYOdWI *3°II'3


L6>°0 ?WNS
6£0°T 090°0 (-)
208°T +b0°O (9-)
<is'T 920°0 (s-)
e2T°T £<0°0O (o-)
L6o°T 9%0°O (s-)
688°Z £90°0 (2-)
Ts0"s $80°0 (I-)
s58°T 22T'0 (o-)

Avis-1 1430991 ovT

S8/> FOR1VWIIST fb = GON 8 Z286T OL is 246T ?3ONVa
(2) 92° = OHA 226°S = SHIT NVBH 920° = “43'S = sud
(ysees"6)
COCCTITSD % CIIANSXd9 )/(1)9XdMONIIOT) * T430I9V1 + —( dIMOUISO] * 686226" +
(L£1625°6) ( 29612") (99662°9) (400°0s2)
sb x TOS060" - 20% Szzbbo" - Thx ZOZI90° - ests2*s = (139 * ANSXd9)/AYSX)9O1

(WSN - °S'N § INRRIND) GTYOM-JO-1S34 OL SLYOdXa SOCD NYHUZ9 (AYSX)

229°0
869°0 920°0

manannnnnn-onamene E
SANG ORO Oe t td td

TTT YT Tt

rT TTT TTT

dvis-1 143039V7 ova

S@/> ‘:Q31VWIISA £9 = GON oO 206r ote 1) £961 saan

6°) 621" = OHN 490°S = SHIT NVBN 50° =
(96Tb6"o)
Sb x 262980" -
(462050") (98Z2E°2)
2b * 695000" - Bx 695260" - (((CI)I9I * CLIANOXdT)/(TOXdMOUISOT) % TAIOIOVT +
(9922°8) (6T*2eT)
(dIMOUI901 * STZZ69° + = «=T8S246°2 = (139 > ANSXdI)/AYNIXISOT

82/1 ‘G3LVWIIS3 6S = GON oe Seer Oh 20, T96T_ 3ONVY

(YN) Tes" = OHY VN = SHT NV3H 60T° esud
wu (178-)
(C139 % ANOXdI)/9XdMOUIIO] x BISbHS° +  (dIMOUISOT * 22ZE°T +
(z*2-) (2°T-) (6°9-) (9°S2)
sb % 962890° - 20% 665050" - Td x Zb2zTI2* - s0Sb°T = (13D * ANSXdd)/AYIXISOT

SNOTLYNO3 FAVUL SGOOS WasLV1IG |3GOW MOU

= yet -

“sT6

wa

“916


-40-

from the theoretical prototype, in that the absorption deflator is used
instead of the price of gross output in the main price equation. Data
on the price of gross output are not readily available for the MCM
countries, because the price of imported intermediate inputs is not
easily obtained.

As described in the theoretical section, prices are set, by
suppliers to maximize profits given demand, and thus the price equation
represents the aggregate supply function in the model. The prices of
exports and domestic output are treated separately, since producers are
assumed to be able to price-discriminate in the home and foreign markets.
The price of imports is given by the foreign export supply prices.

The absorption deflator is modeled as a weighted average of
the price of domestic output and the price of imports. We substitute in
the determinants of the domestic output price to obtain the general

specification for the absorption deflator:

POIL
log P = a + a, (L) log UC + a(L) log W + a,(L) log a7

+ ay(L) log PMNOIL + a5(L) UN

where P = absorption price deflator
UC = user cost of capital
W = nominal wage rate
POIL = price of imported oil in dollars
EI = exchange rate index ($/local currency)
PMNOIL = price of non-oil imports in local currency

UN = unemployment


S8/> g3LVATISS 29 = GON OB Zeer oe 2B 996T =39NVE
Ts0°2 = MG ZTO" ‘SH1 NV3W 950 was <oT° = BSYD

(9gr59°T)
(CCCT- )0MXAd43 1901 - ((T-)SHd3)901) * 695TS0" -

(L999T' Ed (sl¥e8b2")
(CaMxAd43 19010130 * 282259" + Tz0s00" = ((SNd3)901)130

S39TAU3S 30 SLYODNI HOI YOLVISIG (SWd3) “897

59/5 ongeyurssa 0S = GON 4b 2861 O1 2D De6T +3ONVU
£26" = BSYD

(9°22) 6" = = SHT NV3H 220° = “U°3°S
969629") (£099°T) (st099Z") (9965T°T)
Dx 819500" + 2b % SET600° + Tb x TOsb00" + (T-)NNA x SS9800° -
(2£1890°) (¥STOT*2)
CCT- MLaXd43/( 1-133 % (T-WOGd3I90T * ZZEZZZ*  - — (WOUd3 9907 + 9SOZT° = (ANSXd3)907

X30NI 3A Nn 4uOdx3 (ANSXd3) = *L9Z

s8/> joatwurisa 9L = 80N 3 2067 O4 TB. 996T *aQNWY

289°T = Md = SHTNV3H 210° = “83S 2bb° =
(yTos27)
CCCT-9M3)907 - CCT-)Id3d3)901) * £=08S0"  -
(21s9°T) (LE%bT°S) (9b2s2"S)
(CCINS9Nd3)901)730 x £66880" +  ((M3)901)730 * £05z9z" + S99>TO" = = ((-1d9d3)907)730

XB0NI 391¥d U3WNSNOD (1d9d3a) *992

((WOGd3 19019730 = (( IdMd3)907)730

INdino ONTUALAVIANVH — X3GNI 39TUd JWSIIONM (TaMda) °S9z

S8/> :G31VWIIS3 6 = GON TB £e6T TOL 2b ar Te

(£°2T) 998° = OHY £T9° = SHI NV3H STO"

(£22605°) (x9z92zT") (2zs2sT")

=b x £s>T00" + 2b x 9TZ000° + Tb * £02000" +
(8z0S6T*) (2T2992") (9se9ss")

NNZ x GOSTOO’ - ((£-)I33/(£-)110d0)901 * 419900" +  ((2-)133/(2-)1I0d0)901 * 892900" +
(2929" 9 B19" ) (s22eT"2)

((T-)133/(T- )110d09901 * T9ZZ2TO" + —(133/7T0d0)907 x Strtto- + — ((2-0M3)90T * Thz6z" +

(ys0sZ°T) (22220°1) {92099 2)
(CT-)M3)901 % 285282" + = (M3)901 * ZET6ST” + %9259°S- = (TIONNd3)901 * SZ2°0 - (d3)907

¥YOLV1430 NOIIduOSEY (d3) “92

S39Iud “V°AI'3

AlddNS GNV S39IUd "AI'2

- 09 -


-65-

4-country exchange rate simulation the U.S. dollar depreciates by five
percent. This depreciation leads to a very small increase in both U.S.
income and prices. On average, foreign income and prices fall. It
appears that the crowding-in effect of lower interest rates in the
non-U.S. countries is weaker than the crowding-out effect of higher
interest rates in the United States. (Interest rates change as a result
of the effects of the induced price changes on money demand.) The
individual country exchange rate changes tend to exhibit large own-
country effects following the 4-country shock pattern. They also have
very limited impacts on the U.S. economy.

Tables A-13 to A-17 in Appendix 1 display in more detail the
results of these exchange rate shocks, In all cases, the simulated
impact on U.S. real GNP appears to be small initially. This last result
is due to the rise in U.S. net exports, which offsets the depressing
effects of higher U.S. interest rates in the first few years. With the
stimulus to income through net exports, consumption and producers
durable investment rise throughout the simulation period. The dollar
depreciation also leads to higher U.S. prices, because import prices
rise. U.S. prices rise by much less than the amount of the
depreciation, partly because a large part of U.S. trade (with ROW) is
not affected by the shock. The U.S. current account improves, as one
would expect, but only moderately. The appreciation of foreign currency
tends to depress income abroad, which feeds back to reduce foreign

demand for U.S. goods. Further, as noted, U.S. trade with ROW is largely


-73-

TABLE A-4: JAPANESE FISCAL SHOCK

UNITED STATES

Real GNP (%).
Price Level (%). .
Int. Rate (ST)(+/-)...
Exch. Rate (FX/US$)(%)....-
Current Bal. (US$,B)(+/-)..

CANADA

Real GNP (%)
Price Level (%). wees
Int. Rate (ST)(+/-)........
Exch. Rate (US$/C$)(%). :
Current Bal. (US$,B)(+/-)..

GERMANY

Real GNP (%)..
Price Level (%).
Int. Rate (ST)(+/-).
Exch. Rate (US$/DM)(%). :
Current Bal. (US$,B)(+/-)..

JAPAN

Real GNP (%)
Price Level (%)
Int. Rate (ST)(+/-)....
Exch. Rate (US$/Y)(%). .
Current Bal. (US$,B)(+/-)..

UNITED KINGDOM

Real GDP (%)..
Price Level (%)
Int. Rate (ST)(+/-).
Exch. Rate (US$/PS)(%). .
Current Bal. (US$,B)(+/-)..

eesse
Roeee

esese

UVoror

proor
WwwWNND WW

0.
0.
0.
0.
0.

awroOr

FOOCO

UaAnNUw PNERN NONHO HONeR

UNoHO

rosso
Nee

Fooo esses eseses
UwBENe PRENFHO

esess
Noeee

DArAON

NOTE: Amcunts shown are deviations from
(%) = percentage deviation from baseline
(+/-) = absolute deviation from baseline

reooo

5 6 7
0 0.0 -0.0 +0.
1 #02 02 0
2 0.2 0.2 0.
3 03 04 0.
4 1.2 1.0 0.
0 -0.0 -0.1 -0.
2 #02 40.2 «0.
2 #0.2 #02 0.
1 -0.1 -0.0 0.
1 0.1 O11 OO.
1 0.0 0.0 -0.
2 #02 #03 0
1 #02 0.2 =O
2 = -0.2 -0.2 -0.
6 0.8 0.9 1.
2 11 L1lol.
0 1.2 1.30061.
5 0.5 0.4 0.
4 -0.7 -0.9 -1.
5 -5.2 -6.0 -6.
0 0.0 0.0 0.
2 #0.2 #03 0.
1 0.1 0.1 0.
3. -0.4 -0.4 -0.
7 0.7 0.8 0.

the baseline path.

NN FUN RPNNWO HONHR BUNNO

wUuURwWo

NUD WNHNFO Pee UANNO

OUNFO


International Finance Discussion Papers
Number 293

October 1986

THE STRUCTURE AND PROPERTIES OF THE FRB MULTICOUNTRY MODEL
PART I: MODEL DESCRIPTION AND SIMULATION RESULTS

by

Hali J. Edison
Jaime R. Marquez
and
Ralph W. Tryon

NOTE: International Finance Discussion Papers are preliminary materials
circulated to stimulate discussion and critical comment. References in
publications to International Finance Discussion Papers (other than an
acknowledgment that the writer has had access to unpublished material)
should be cleared with the author or authors.


00% * ((dN99)907)130 = dNOHd>

sive Whey - a NI 3ONVHO 39VIN3IU3d ( dNOH: 19)

AGASVSI *% VSNAGAD = AAD

S39TUd - ‘INSWIND - xxOud 3WOONT a78v

Id (AUAD)

dO/VSNAGGAD * AGASVSI = AD

S30TUd 2261 - AXOUd BMOONT JT@VSOdSIO (WIAD)

$8/> :Q31VWI1S3 18 = GON 8 O86T O1 sb Pel ?39ONVa

(2°T) S6T* OWN <22°62 = SHT NV3N IST°T = “y°3a°S T= 8SYD
(2yb"o2E) (£22°2) (£2Ttt"2) (2stt9"9) (1£26S"s)
VSNAdGAD * STbsS6° + £B x L22Z29Z° + 2B % 6466SL° + TR * 60268°2 + £2562°T- = VSNAUIAD

CALTINAQT Tsvne) C¥SND S30TUd | ‘INRWUND - xOud 3HOONT ‘sravsousra CWSNAAD)

AVIII - ANVELD + AIILD - ALI - VSNAdNSD = VSNAdIAD

(WSN) ‘$39IUd ‘IN3WND - 3HOINI ‘a1avsousra ‘TWNOSY3d (VSNAd(IAD)

. 4) * IID = AXIO

S30rud INSwUND - "INSHLS3ANI AMOLNBANI 31LVAIUd (AlI3)

AddTAVSI/AdSID = WSNAd:IID

(VSN) "S30T¥d ‘INSWUND ~ AN3HLS3ANI G3XI4 JLVAIUd ( ¥SNAd:! 3)

dd * ddID = AdiID

S391Yd LN3YuND - "INBMISSANI @axXI4d 3LVAIUd (AdiI9)

-2-

“ST

was

“or

“ST

“st

*2t

“It


To *

066°0

026°T s2t‘o
. oto°ST s98°0

dvis-1 143039v7

S8/> ‘Q31VWIIS] 06 oD 206T OL £6 096T *39NVE
2s2°T = MG tOeTt 2 SHY NVR OST’ = "w'a°S 466° = BSUD
(9¥S0%'T)
CCIASFX) % T43039V7 + = HE0E0" = ALON

CALTANaGI-Is¥no) (°S°N $) NVdVf WOUS SLYOdWI SGO0S NVWYR9 (ACOH)

439 % ATOSHS * YHSADSHS = ADO

C S‘N $) 33dO WON SLYOdNI TIO (ACON)

986°0 tH

628°0. 690°0 C
So9°ST 226°0 (0

4ivis-1 143038V7 ovI

S8/o FORtYHTLSS 8 = GON 8 2861 OL 20 st S26T et}

(9°2) 808" = OnE = SHIT NVBH Té"T = “a°3°S
(9g9%82") . (LETLob") (STOIT*T)
<b * £0S9T" + 2B x 6T0Z0S" - TB * £97299" -
(8626 °T)
(OOOT/( 1)83S/(1)1IOdO * & * (IIBSAVG * (I)TOOHD) * T43099V7 + S8Eb6°9 = ATOIND

(ALTIN3GI-ISwNB) 3NWA - SLUOSNT 120 (ATO5NO)
¥aTOOND + 1089 - BSAVG/( 10S9)7130 + 103X9 + 1099 = 109N9

(aan) BWI0A - SLYOdWI TIO (109K)

<It‘t
esr°> TIt‘o
esr" £22°0
esi"> ‘bss°O
esr" Sbb'0

4AVis-1 143039V7

58/> 'G31VWILS3 2s = Td seer os To. 046T ?39NVa
(8°<) Zoo" = OHA 62E°S = SHI want <0 246° = sud
(obeTt’2) (9602T"s)
sb * S22bs0° - 2b BZeSZ0° +
(£x685°2) ( 1902")

60sse0" + BWIL x 81900" +  (((IIANOXdI/(1)I99 * (1)dId9)I901) * T43099V1 +
(rez9s"s) §835600 2)

CVSNANSS 1907 % 6£900°T +  6£886°E- = (ANSXdI/AION)901

S3TUINNOD WIULsnont WOW NON WOU4 SLYOdNI Sd009 NYWaR9 (AIS)

- te -

“18s

“6LE

"OLE

“L2¢


(CYAVD30D + OOT/dX3d9 - (OOT/THD) * CAYLD - T)) % CYLNVESD - T) = YOND

CAVILNIGISIY) WLIdvVd 40 1809 Y3SN (YIN)

COAaL

- T)/CANAVDIGD + OOT/dX3dD - (OOT/ THD) * C(IAMLI - T)) % CUNINVYSD - d30999 * DAYLI - T) = YNIND

(AVILN3GISIY-NON) W1LIdv 4O 1S09 Y3SN (YNIND)

CQ3N3S119

% COCOOTS THD) * CIAMLI - T))-3)dxd - COC CUNTWES/T - T) % YNSITID) *% COOT/TYD) *% (DAML -

T))-)dX3) % CCCUNTWEI/T - T) % YNSSIID - YNASIID) * (COOT/THD) * (IANLD - TIIZCCCUNTWEI/T - T) *

YN3SIID) % (CYNSITID/YNTVED)~)dXd + CCCCUNTVEI/T ~ T) % YN3SIID) % (CUNSSITI/ENTVED + (00T/TH9)
% CQABLI - T))-))dXa - T) % CUNASTID/ UNTIED + (OOT/THD) % (DANLD - T))/YN3SITI/UNTVED = d30939

NOILVID3Ud3d JIWONOIT (d30939)

- os -

*22t.

927

"S2t


84/1 ‘Q31VWIISS TS = BON 8 SZ6T OL 2D £96T *3ONVY
2e°T = MQ WN = SHT NY: <6L°2 = "Wa"S TL6* = BSUD

(s°2) (972) (2)
(1-)0Nd % 5299'S - IZSLAGa * Z2H0T'SL - (T-)GNA * (T-)IbTLAGa * 9Z50E°2 +

(2) (t's)
(1- ama x (C1-)ISTZAGR - T) * 209T6"9 + = (T-IMTNR * (T-JISTLAGZ * b2G65°E

(26) (wt) (£") (97s)
(1-)MTaa * BSTE6"> + «GUA x HOZEG6" + IbTLAGA x OHBT’ST + TIZ°TIT = ZHTua

BLVY FSVOLYOW S313:

ONIGTING (ZHTU3)

629°0 Wns
682°0 800°0 (It-)
299°0 9T0°0 (OT-)
Zet't 92070 (6-)
999°T ££0°0 (a-)
62°2 140°0 (-)
928°2 640°0 (9-)
622°¢ 2490°0 (s-)
09s "s 990°0 O-)
299°< 20°0 (s-)
269° 290° (2-)
To9°E 060°0 a)
Tos" 660°0 (o-)

dvis-1 143039V1 ov

S8/> :G31VWILS3 ZZ = GON ZB £86T O1 TD $96T *3ONVY
(Z°ST) ZI6" = OHY TZZ°OT = SHIT NV3W 602° = “Y°3H°S 6° = BSYD

(£9802°T)
COD WIsua) % T430990V17 + «= 9590" = MTR

BLVU NVOT MYM 42Z/T-£ (M143)


=26

The major purpose of this paper is to document the MCM by
providing as exact as possible a description of the equations of the
model. We supplement this description with a series of simulations
which show the basic multiplier properties of the MCM. The goal is to
make the model accessible to those who might wish to analyze published
simulation results of the MCM, to compare the MCM with other
multicountry models, or to use MCM results in other work.

This effort is motivated in large part by the results of a
recent conference at the Brookings Institution on multicountry
modeling.! The proceedings of this conference made clear that there
is a substantial demand for empirical results from multicountry mocels,
both directly for policy analysis and to use in other, non-econometric,
modeling efforts. (See, for example, Frankel (1986), Oudiz and Sachs
(1984)). But it was also made evident at the conference that the use of
multicountry model results by others was greatly inhibited by the wide
range of results obtained and by the impenetrability of the models
themselves .2

Our paper is an attempt to explain clearly what is in the MCM,
why it is there, what happens when the model is simulated, and why. The
paper is organized into three major sections and two appendices.

Section II describes a simplified version of the theoretical model on

Ingmpirical Macroeconomics for Interdependent Economies: Where Do We
Stand?", Brookings Institution, Washington, DC (March 1986). A volume
of papers presented at the conference is forthcoming.

2Helliwell and Padmore (1985) presents an earlier effort to deal with
this problem.


2b x tGET2°2

O38 * SEZ80°T

20 * ST6550°

aso + 2W9 = <Wo

=H - AlddMS AINOW (2H)

aio + THO =

2H - AlddnS 3NOH c2ns)

9005 + dIWS = IWS

TH - AlddMS A3NOW (THO)

dags + undo = dIWo

JH AIBLVAIUd (d TWO)

a49 + Gs9 + ai9 + Gas = 109

SLISOd30 IW.1OL

S015 + d0l9 = G19

JWiol - SINIGISIY AG GIN S1TSOd3q SWI1 (G19)

gaqs + daqs = aqo

loi - Sirsod3a oNvw3d (aa9)

S8/> i031VWIIS3 Sf = GON +8 2e6r 3 5B Let ?3ONVa
996°T = MG SZ°ST = SHIT NV3BW 625°T = sud

(960¢TS")

<b x 195"
(eT0s99°) (Z199°2T) (8bbT9"s)

- Te x 242085" - (839/0MNJS) * Z2STOO" + 339 * T69OT'T -
(20sTS"£) (Te9TZ"2) (6STZ*oT) (698Z"sT)

1
7
rm
o

- SUD * TOE9Z9" + —(Y39/OMNADI/ASXD * Z°ZT6T + © 99T9°Ob-

SONVE NVHUIO 1V S1ISOd30 WIVW G13N NOT3Od TIV (ad5)

$8/> <Q31VHILS3 IS = GON 8 Z286T OL 2B OL6T = 3ONVU
S2°2 = MQ 6265'S = SHIT NV3N 210° = ‘Y°3°S 166° = BSD
(1005 °6)
£B x 868E50"  -
(£29926) (ye2zt2"5) Col956°2)
TB * G2bb0" - (AYSYS - SYD) x 9T0900° - (d9/MND)SO1 * $S202T° +
SIt6o'T) (88S"02) (2T062°2)
(dNS59 1907 x 20LE22" = ((1-)d9/(T-)0S91901 * ST6s68" + 808SZ7°T = (d9/0S9)901

W101 - ‘SINIOTSIY A@ 13H SLISOdaa ‘SONTAVS cass)

- 06 -

“tab

“Tkb

“Ofb

“62>

“82b

“L265

“92

“Sto

“bey


NVALLIVSC/ANVULS = SNANVULE

‘SUB4SNVUL INSWNYIAOS (SNANVUIE) = “EES

ASAIAVSP/A94IF = VSNAOSIC

JBN - INBHISIANI G3XI4 IN3SWNY3A09 (VSNADSIF) = *259

df * S4IP = AQdIC

S30rud INRRND — AN3WLSIANI G3XI4 LNSWNYRAOS (ADSIC) “TSS

(WSN)  S30Tdd ‘IN3WUND - ‘S3UNLTONIX] AN3HNYZA0S (YSNAST) = “OSS

S39TWd INTWWND - SFUNLIGNSGX3 INSWNUIADD (AST) “625

S8/> :G31VWIIS2 25 = GON 8 2861 OL ZB 2461 *39NVE
(2) 82s" = OHY 952° = SHT NV3N 610" = ‘a°a°S 609° = BSYD
( 25866") (28926")
<b x 989550" + 2b % Shbls0° +
(809T"°9) (gs%08" ) (80Ts2°2) (0S292°)
TR % 485260" + AULT x ST@L0Z"° + ABLE x 456822" + G22620° = VSNAANOF/AIC

S39TWd NTWUND - 3NNIATY INBWNUAGS W101 (ALP) “82S

v2o°0 ?WNS
£59°0 0z0'0 (s-)
£59°0 00°0 Oy)
£59°0 190°0 (£-)
259°0 180°0 (2-)
£59°0 TOT'o ar)
259°0 T2t'o (o-)

Avis-1 143099V7 ovT

S8/> :G31VWIIS3 25 = oD 2861 O1 6D 696T ?39NVE
(6°T) 282° = OHY 8°6600T = SH1 NV3W e s@0T = ‘N'3°S ZT6* = BSUD

(9988°9)
dOdr * 60Tsol* +
Cdf7 OOT/TEF * 2/00 T-IIdSN ~ CIIAONG - (T-1)18309F + (1)19309F)) * TI3099V1 +
(22985°9)
o°T<0bL~- = = df /ANVULE

401938 BAVATA | OL ‘SUB4SNYL ANBWHYIA0S CANVELE) = 225

WOLI3S INSHNUBADD “@°I-r

- OIt -


AQITAVSI/ADIIID = VSNADIID

(VSN) S391Ud JNI8UND - 'INSHLSIANT a3xI4 AN3HNYIA09 ( VSNASIID)

d3 * 94ID = ASSIS

Sa3Iud 226T - ‘S3SvHound NOLLdHSNOD AN3HNY3A09 (A993)

S8/> :Ga1VWILSA 62 = GON 1B £86T OL 4B GL6T ?39NVE
(9°S) 692° = OHY S%S°SE = SHT NV3W its" T = "w'a°S 86° = BSYD
(85ST "9)
=D x £8692" -
(xos69°s) (92822°9) (9TsT6"S) (o22o65")
2B * 9686°T - TB « 2TZ2fS°S +  (AGNILD - VSNAGNSD) % BTSE9T" + 2e898°2- = AGNILD

(ALLIN3GI Iswne) S30TUd | ‘INRWIND - ‘1D34NT0NI ~ S3XVL (CAQNILD)

S8/> savers] 92 = SON Tb £86T O1 TD piel ?39NVa
CT) 992" = $66 sud

OHY T* = SHT NV3H TOO" = “Y°3°S
(9900°2T) (92629°T)
sb x 985800" - 2b ZTSTOO" +
(9TZ96°T) C9TSo"ZT) “(196E°SE) (6s9S0°T)
TR x SZETOO" + JAWLD x S64TZ2° + AYLI * ST@BS" + GZES00" = YSNACNDI/(AGNILD - ALI)

S39Tdd INIWIND - SNNSAIY INIWNYIADD W101 (ALD)

959°0 Wns
gT0°0

e
&
C
3
OnamMgnon

4ViS-1 143020V7 ova

$8/> :G31VWILS3 +5 = GON 8 2961 OL 28 e26T ?39NVa
(T*>) $2G° = OHY £62°%E = SHI NVBN 126° = ‘Y'3a'S sud

(6R68T*T) (o2T989°2) (9E886°9) (T29°9T)
£B x S360Z25° - 25% 905488" + TB * 28662°T + d2 * STdOdD * 28ZZ2E°T +
CO OOT/THD % Z2/((T-I)GSND - (1Id9ND - (T-1)4GNNID + (1)40WNID))) *% T43030V1 +
( 92985") (2982°9)
3 % (00T/J19 * NND) x 82698" + HT8S9°8- = ANVYLI

0193s BLVATUd O1 SY3ISNVUL INSNNYSA0S (ANVULI)

“oT

¥0193s ANSWNYIAOS “8° I'D


-30-

the Federal Reserve Board. (See Helkie (1986) for more details.) The
major difference is that the U.S. model contains aggregate, not
bilateral, equations to explain total nonagricultural exports and nonoil
imports. Oil imports and agricultural exports are modeled separately in
the U.S. model. Bilateral trade equations are used to explain intra-MCM

trade flows vis-a-vis the United States, but not the U.S. totals.

Imports of Goods (Sector II.A.)

The Multicountry Model uses bilateral import-demand equations
to explain each country's goods imports from each of the other four
countries and ROW, as well as ROW's imports from each of the five MCM
countries. Total imports of each country are obtained by summing its
bilateral imports, and total exports are determined by summing the
imports of the other countries and ROW from that country. (As noted
above, the totals for the United States are obtained from separate
equations.) The main advantage of using bilateral trade equations (as
opposed to a trade share matrix) in a multicountry model context is that
the effects of changes in bilateral endogenous exchange rates, which
affect bilateral trade patterns, can be handled explicitly.

To estimate a given bilateral trade flow, one can use either
the source country's export data or the receiving country's import, data.
In principle, the values ought to be the same, but due to differences in
coverage and reporting delays this is usually not the case. In most
cases, the MCM uses the bilateral export series of the shipping country
in estimating the behavioral equations, and uses "bridge equations" to
link the export series to the corresponding import data of the receiving

country.


(T-)MNC + MNOP = MNE

HLYOM 13N (MNF) “65S

(LVa ATID) S¥9TUd INTWIND-HLNOM 13N NI 3ONVHO (MNar)-8ss

CCVSNAVI9P - YSNAIIC + VSNAdSIF)
+ CYSNALT - SNANWULT + VSNASJIC + VSNAST) + ANVULWE - ANVULXT + ASOWT - ASOXT) * S2°O = VSNMNOC

ciiva ’1b-VSN) Sa9Tud ANZYYNI-HLYOM 13N NI 3ONVHD (VSNMNOT) = “ZES

HL 1v3M ONY SONIAVS 31LVAIUd “2°I°r

- 2It -


-80-

TABLE A-11: US MONETARY SHOCK

UNITED STATES

Real SNP (%) 70.4 -1.0 -1.4 -1.5 -1.5 -1.4 -1.2 -1.0
Price Level (%) -0.1 -0.2 -0.6 -1.0 -1.5 -2.1 -2.6 -3.2
Int. Rate (ST)(+/-). oe 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0
Exch. Rate (FX/US$)(%)....- 1.6 2.5 3.1 3.9 4.7 5.4 6.1 6.7
Current Bal. (US$,B)(+/-).. 1.4 1.2 1.0 0.6 -0.3 -1.1 -2.1 -3.8
CANADA
Real GNP (%).....-see scenes -0.4 -0.9 -1.3 -1.3 -1.1 -1.0 -0.8 -0.6
Price Level (%) -0.1 -0.3 -0.8 -1.5 -2.4 -3.4 -4.5 -5.6
Int. Rate (ST)(+/-). 1.0 0.9 0.8 0.7 0.6 0.5 0.5 0.4
Exch. Rate (US$/C$)(%). . 0.0 -0.1 0.0 0.2 0.6 1.1 1.6 2.3
Current Bal. (US$,B)(+/-).. 70.2 -0.4 -0.8 -0.8 -0.8 -0.9 -1.0 -1.1
GERMANY
Real GNP (%)...-+-+eeeeeees -0.1 -0.1 0.1 0.2 0.2 0.4 #05 0.7
Price Level (%)...... 0.3 0.4 0.6 0.8 0.9 1.2: 1.4 1.7
Int. Rate (ST)(+/-)........ 0.4 #04 #04 O05 0.6 0.8 0.9 1.1
Exch. Rate (US$/DM)(%)..... -1.6 -2.6 -3.3 -4.2 -5.0 -5.8 -6.6 -7.3
Current Bal. (US$,B)(+/-).. -0.6 -0.9 -1.5 -2.3 -3.0 -3.6 -4.2 -4.6
JAPAN
Real GNP (%)....eceeeeeeeee 0.3 0.5 0.6 0.8 1.0 1.3 1.6 1.9
Price. Level (%).....--.000- 0.1 0.1 0.2 0.3 0.5 0.7 1.0 1.3
Int. Rate (ST)(+/-). . 0.1 0.2 0.2 «0.2 0.3 0.4 0.5 0.6
Exch. Rate (US$/Y)(%).. 2 22.2 92.7 -3.6 -4.5 -5.4 -6.3 -7.3 -8.2
Current Bal. (US$,B)(+/-).. 0.7 1.1 0.9 1.9 3.3 4.9 7.0 9.7
UNITED KINGDOM
Real GDP (%) O.1 0.1 0.2 0.1 0.0 -0.0 -0.1 -0.1
Price Level (%). 0.5 0.9 1.1 1.5 1.9 2.3 2.7 3.0
Int. Rate (ST)(+/- 0.1 0.1 0.4 0.5 0.6 0.8 1.0 11
Exch. Rate (US$/PS)(%)..... -2.2 -3.5 -4.1 -5.1 -6.2 -7.0 -7.9 -8.6
Current Bal. (US$,B)(+/-).. O21 0.2 0.5 0.6 1.0 1.9 3.0 4.5

NOTE: Amounts shown are deviations from the baseline path.
(%) = percentage deviation from baseline
(+/-) = absolute deviation from baseline


00% * ((49)907)130 = MHOdS

BLVY TWNNNY - S39VM NI 3ONVHD 39VINIOU3d (MHOdD)

M14¥S9/(319 - 419) = VSNNIS

(WS) BLWY JN3NAOTH3NN (YSNNT9)

4719/0379 - 419) * OOT = NNO

LVY JN3HAOTdWINN (NID)

280°0 *HWNS:

0z0°0 (-)

9T6'T 920°O (2-3
622°0 sto" (T-)
“oO sto"o (o-)

ivis-1 143098V1 wl

Cetezes") * (g9sszez") (£6£90°T)
(20 % 859000" -- 2B TESTOO0" - To x 6z@T00" -
(x2099°S)
BHIL * O£2600° + ((( (1089 * 261901 - (£85H"Z * S9Z“O * (1)1099)901)) * T43090V1 +
(9S25")
CO % 261901 - (£8585°2 x S9Z°O * 1039 - INSOWD)9OT1) * 25969T° +
C9stee"s)
COS % 261901 - (b0T00"°O * 419)901) * 9°O + (AD * 261901 + 80686°T ) dX3 + INSOWD - = 1LOddNOD
CNOLLYND3 #9 NI aaivinoqo + SIN3T9144309) AND WIIN310d ( 10ddNS9)
280°0 WAS
g02°T 0z0'0 (s-)
9T6'T 9£0°0 (2-)
6L2°0 ST0°O a1-)
806°0 ST0"O (o-)
Avis-1  143099V1 ov
S@/> :Q31VWIISS Sf = GON ob Ze6T OL 2 Sgt 3ONVY
(g°2T) 22° = OMY 282° = SHIT NV3W S00" = “Y°3°S Sud
CeTezes") Co9sszez") (£6£90°T)
£b x 999000" - 2b x TssTO0O" - TD * 628T00°
(22089"s)
BHIL * O£2600° + (CCC 1)*9 * (1)NINI9O1 - (se58b°2 x S9S"O * (1)1029)901)) * T43099¥1 +
( 99255")
COS * 139)901 - (£8GBb"2 * S9F"O *% 1099 - INSOHDI9OI) * LZE969T* +
(9sTee"s)
80685°T = ((%9 * 1991901 - (IH19)901) * 9°0 - (49 * N39)901 - CINSOND + dN99)901

X30NI - woavt 40 ‘SUNOH W101 cms)

"L9>

"99>

"59%

"99>

"29>


-75-

TABLE A-6: 5-COUNTRY FISCAL SHOCK

UNITED STATES

Real GNP (%)...-+eeeee even
Price Level (%). wee
Int. Rate (ST)(+/-)......+-
Exch. Rate (FX/US$)(%)....-
Current Bal. (US$,B)(+/-)..

CANADA

Real GNP (%)...--- sess sees
Price Level (%)
Int. Rate (ST)(+/-).
Exch. Rate (US$/C$)(%)....-
Current Bal. (US$,B)(+/-)..

GERMANY

Real GNP (%)
Price Level (%)..
Int. Rate (ST)(+/-)..
Exch. Rate (US$/DM)(%). .
Current Bal. (US$,B)(+/-)..

JAPAN

Real GNP (%)...---+eeeeeeee
Price Level (%)
Int. Rate (ST)(+/-)..
Exch. Rate (US$/Y)(%)......
Current Bal. (US$,B)(+/-)..

UNITED KINGDOM

Real GDP (%)

Price Level (%)..
Int. Rate (ST)(+/-)........
Exch. Rate (US$/PS)(%).....
Current Bal. (US$,B)(+/-)..

NOTE: Amounts shown are deviations from the baseline path.

eonor
ORO

NORWHN

RPNOFN ArROAN

WHWUAL

COWOR NPOWS UrunUN FUUEN

HPNWNO

FYUNwN UUnow ware WANUN

ouOonH

CORON FUIYHA. NORCO AOoOrO

OwURUYO

NBWBOND Drow OUFON ON UH

NWO VS

(%) = percentage deviation from baseline
(+/-) = absolute deviation from baseline

ear efyre

Ne RN

UANWO

wny~se CHUWH

NoOoMLD

OPRWOF

-0.:

“2.
-1.

wo

Pare e pews

ar aS
ROO

FRAWA

WRENWO

-0.

-2.
72.

a

FREOS
NER EY

Dor Pw
CHWOW

Owoon

WUNnoF

ANFAN


-14-

equation. As a result we conclude that perfect substitutability is an
appropriate assumption for a model of this type. Tryon (1983) and

Danker et al. (1984) develop the empirical argument.

Comparative Statics

In addition to providing an overview of the MCM, the simple
theoretical model presented above is of interest because it is
analytically tractable. We now exploit this property to present some
simple comparative statics. exercises which derive the basic results to
be expected from the simulation experiments in Section IV below.

The static solution to the model is straightforward to obtain,
and is presented in a standard IS-LM framework. We assume for
simplicity that the initial equilibrium is a stationary state, with no
growth in real or nominal variables. The long-run solution also depends
on dynamic effects, which enter the model in several ways. Consumption
depends on lagged income, and investment depends on the change in income.
The term structure of interest rates, expected inflation, exchange rate
expectations, the capital stock, and wages all follow dynamic provesses.

Without placing further restrictions on the form of these
dynamic processes it is difficult to say anything definitive about, the
long-run solution of the model. In particular, it is not necessarily
true that the economy in this model would return to a stationary
equilibrium following a shock, or that agents would expect it to. Even

in a model as simplified as this prototype, the dynamic properties can


(T-)SV4NS + $/(TVASV4G9 - 1SV4NGS) = SV4IND

(IN3HNIIAOS 3H 4O SL3SSV NOIFYO4 13N 4O AIOLS (9V4IND)

‘WASV40S + SV4NG9 = 19V4NG9

$193433 NOILVNIVA INI *1A09 3HL JO SLISSV “wos res) NI HD | (18vaneo)

S8/y iG31VWIIS3 62 = GON ob Z86T O1 ZB E46T ?3ONVY

ST@°T = MQ T2T*>- = SHI NV3H 52°22 = “U'9'S 6ST" = OBSYD
(£262T°2) (Z2T98°2) (LT66£°2) (99285°2)
ToLdd * 666°$2 - (T-ISVIND x T2éS0"T - (T - (1-)439/839) * oSe°08T + 9128°19 = sv4NGD

$199V Wirava ONY ‘INRWND - ‘SNOLLOVSNVUL Tw 40 oNvIva (Sv4N09)

SLNSWAVd 4O 3ONV1VE GNY NOLINJANBINI WIDI44O “IAS

- 90T -

"26>

“26>

"l6b


~h9-

The exchange rate equation is derived from the open interest parity
condition by substituting in an expression for expected appreciation, as
described in the theoretical section above. In the United States
(combined with the Rest-of-World sector, whose currency is tied to the
dollar) the underlying equilibrium condition is redundant by Walras' Law
and the exchange rate equation is dropped.10
The resulting exchange rate equations take the form
log ERFW = log(FP/P) + ag (RS - FRS + PEXP* - PEXP)
where
ERFW = weighted average exchange rate, foreign currency/home
currency
FP = foreign price level
P = home price level
RS = home short-term (three month) interest rate
FRS = foreign short-term (three month) interest rate
PEXP* = expected foreign inflation rate
PEXP = expected home inflation rate
The coefficient az is set equal to .03 for each country; the derivation
of this coefficient is based on work presented in Hooper (1984).
Equation 483 in Appendix 2 is the German exchange rate equation;
equation 489 is an identity which identifies the $/DM bilateral rate.
This section also contains the equation for the stock of

portfolio liabilities to foreigners (equation 484). This is an asset

10For more details see Hooper (1986).


>/9VANO] + (T- JOVANI = SVANI

ANWNUIA0S BHI 40 ‘SL3SSV NOTIOI 13N JO NOOLS (OVINA) “6TE

Te/T G31VWIIST 81 = GON 2B O86T Ol TH 946T :3ONVY
Se°t = Md WN = SHT NVI 999°2) = "H'3'S 899° = BSUD

a (2°2)
(1-)9VAN3 % 96295" - (CE (PISVANGZ = T- f8- = FIWNS * SZT°O) * (12640 - T) * 99ST*2 -

09)
(433 - ((7)833 * 0 fs- = TOWNS * SZ°0) x B0B"bL -

(U2) (vane)
(433 - (CP)NFa = 0 fE- = FINNS * S2°O) x 12620 * Bs62°29 + BsHOS"T = SVINGT

‘IN3WNUBA09 3H 0 | ‘SLaSSv NOT3UOS 43N NI 3ONVHD (9VING3) “STS

wi

‘SAN3WAVd JO 3DNV1VE ONY NOLINSAN3ZINI WWIDTS4O *IA*

-o-


7 WENO + (T-)IMNO = MNO

297/> *QRLWMILES 2£ = GON 8 O86T OL TD £Z6T *FONVY
(6b°TT) 666° = VN = SHT NV3H 'ez0000° ews Ts
(t0000"-) (0000° (£9
aWIL x sooose” -  ASXO x 9480" - ASWO - ASXO + 625S°%) =  TvERINDO

CYSN-= "5°11 § ANSWUND) JONVIVE INNODOV INZAUND 93d0 Cyveringo)

‘WOdO * YIASXO + OOOT/S9E * (XTODNNO

— T490NN + XTOSHTO - TOSWT + X1IC9WS0 - TOSHD + XICOWIO - TO9W3 + XTOSHIO - To9K9 * 1I0d0 = ASXO

(28°T-)
20 * %£TZ90°

e9e°0 WS

062°2 >T0°O CII-)
ost"s 220°0 (OT-)
0s9°< 6£0°0 (6-)
os") TS0°0 (a-)
oss"S 290°0 (-)
065°2 220°0 (9-)
It 280°0 (s-)
Os5°02 160°0 (>)
008° oT OOT'O (£-)
oz2"9 g0T'O (2-)
oes's STT'O (T-)
006°£ 22T'0 (o-)

ivis-1 143039V1 ovT

28/> aS 22 = ) O86T O1 TD £46T *39ONVU
(@o°<) 9225" = OHY = SH NV3W eoz0" = ewa'S es6s6" sud

(20°)
<0 * GHB60" -

(22°E-) (60°T)
TD « 202860" - CCCT-1)A8X0 19071) * T43039V7 + Toetz* = (CASWO 1907

SNOILYNDZ JadO *IIT'Y

- £8T -

"0s6

"626

"926

“£26


-87-

TABLE A-18: CANADIAN PRICE SHOCK

UNITED STATES

Real GNP (%)..- eee eeeeeeee -0.
Price Level (%).. 0.
Int. Rate (ST)(+/-).. wee 708
Exch. Rate (FX/US$)(%)..... -0.
Current Bal. (US$,B)(+/-)..  -0.
CANADA
Real GNP (%)..--eeeeeeee ees -0.
Price Level (%).. 1.
Int. Rate (ST)(+/-). 1.
Exch. Rate (US$/C$)(%)..... 0.
Current Bal. (US$,B)(+/-).. -0.
GERMANY
Real GNP (%)..------eeeeeee 0.
Price Level (%).. 0.
Int. Rate (ST)(+/-). 0.
Exch. Rate (US$/DM)(%). 0.
Current Bal. (US$,B)(+/-).. 0.
JAPAN
Real GNP (%)..+--seeeeeeee - 70.
Price Level (%).. . 0.
Int. Rate (ST)(+/-). 0.
Exch. Rate (US$/Y)(%).. : 0.
Current Bal. (US$,B)(+/-).. 0.
UNITED KINGDOM
Real GDP (%)....--eeeeeeeee -0.
Price Level (%)... -0.
Int. Rate (ST)(+/-)... 0.
Exch. Rate (US$/PS)(%). . 0.
Current Bal. (US$,B)(+/-).. 0.

HROOO NHOOO NENOF aNooco

rRORO

-0.
-0.
0.
0.
-0.

rPRrOOO FAW NNOOO

woood

HNOOO

-0.

-0.
-0.

-0.

-0.
-0.
-0.

-0.
-0.
0.
0.
-0.

FOwUUrF

ouncoco

HROOO NOOO

roOooO

-0.
0.
0.

-0.

-0.

NOTE: Amounts shown are deviations from

esses

eFore

esses
HROOO

DOMME Heoce

wrHoor
°

orooo

the baseline path.
(%) = percentage deviation from baseline
(+/-) = absolute deviation from baseline

ROOF

esse
rPRrRoOoOO

-0.
0.
0.

-0.

-0.

Feocced

wm oON Or

eonooo

-0.
0.
0.

-0.

-0.

NHOOO Aroor OFAN “RHOOO

onooo

-0.
-0.
-0.
-0.
-0.

-0.
0.
0.

-0.

-0.

esone

essss
NNOOCOSO

wOouURSD onooo

@anNnoor

enooo

-0.
-0.
-0.
-0.
-1.

onooo

ONRREE DWUUNAS Wwwooo

wrNnoor


Ib ob Tos INSOX9

ele 109x9
<Ib O6F OFF
S6b
s6> OWLMS
S65 “THLMS
o>
Sob IWLM9.
s6> SWLMS,
S6> WLMS
L£9 09 = Sbb MS
59> 09> Sb BG 22 SST NNS
Slo ts 4nd

ehb
ilo 9L>b LEE

S9E £95 O9F HSE VSNALS:
Blo 94> 09F DAULS
GLb 09F AULD

S9E <9F BSE =

Lt 2b d019

Leo 9019

I> ibb 62> Tio 82b Lz ao
els oso

9b fbb b> 2b 82 HZb aso
lly 91d ‘wass

oIb 21% = =©AINXAVSSD
MNAVS9

695 Vv
20% 005 AINNAYSD
99> ni4vso
@s¢ = AII4VS9.
pata Ir4vso

19s ‘994VS9
9bE A24VS9
so waod
9%> 2b BWILYS
Leo b2> 12 rN
£16 S69
69 £69 SBb SBb £8 Bib Lid 9% GEb GZ 2% 22> GOH S6E OSE IEE IEE OFF
I> 6b ‘GLuauS
. o> 6b asauus
9b Tob 6fb aquwus
Ob 655 Juu9
Oo uw
28> 265 701785
08> 05 301789
Te 81> 914 Glo Bkb Leo 9S 2H OSE ZEE Tas
zo GEb Ft
90> 2b ravs3uo
sx aus
Sle odo
<8> 65> 149
S26 816 L406 S06 284 269 169 255 SB OS O6F 6ZE BZE L6T HST 2ST LE Anaxd9
29> dod9
95> Sob TIONHdS
1s> SBE
25> 95> 55 INSSWdS
ooo L4E OLE GLE SLE ELE ZLE dIdd
969 989 28> 85> s5> £05 26S SHE HzE dNOd9
£8> 91> Slo 09 65> BSb IEE dX3ad9
18> 05> 6bb wWoado
a 668 25> Id3d9
19> MHId9
S95 dHId9
<i> THHId9
£s¢ dNSHIdS
Lob WESHIdD
069 Ish Ll> 655 LS SSb ZSh Bbh HZ L2H ZZ I2> f£Ib Ob Tok
Tde OLE 89F L495 29E I9F BSE IGE TSE OSE GHS ME SHE OHE BEE EEE GZE s2E
2ob @aH1OS
SB £2 12> 69F 89 VSNAMNS,
OLE 955 ‘uMNS
e9e 19S

b2> OLE 695

2o> 655 ‘8ad9NO

98> VIONS

<6 [6b 8b 2bb SVIND
slo IINXL3NS

Tob Seo aNd

2x6 ho

zo «Isb ews

Os> 625 dThS

<<> kb Of6 THS

U3GHNN =NOILvNda | JTavIUVA
= S6T -


AGNASHS + AGASHS = AASHD

‘SIN3WAVd SWOONT ‘INSWLSIANT WoL CAKSHO)

98/> :G31VWIIS3 O04 = > 2861 OL 2 S36t_ + JONVa
(L°0T) 82° = OWN TO°Z = SHI NVSW nat =e cwa's sud
(92088°9) ($2929°4)
(AGA9)901 % £5600°T + Z8TZE"b- = (AdNVYIND)901

“S6s

£6T"O 9L2°0 Wns

ose"T Tt0"0 L9L°S * (-)

gt0°z 610°0 L9L°S ST0°O (9-3

Tos "2 920°0 L9L°S £20°0 (s-)

2g2°2 620°0 29L°S Tz0°0 (o-)

£LE°< ‘£0°0 L9L°S 850°0 (s-)

622°s 0s0°0 29L°S 90°0 (2-)

see'T 220°0 29L°S ¥S0°O (t-)

a 218°0 Tz0°0 29L°S 190°0 (o-)

4vis-1 243029v1 AviS-1 143099V1 svt

s8/> *aalweTisa 6L = ob 296T ste 2 oe ?39NVa
00°2 = Md ‘SHT Nya 600" = "NaS sud
(£9999°T)
COOT/(I)SYS) * Z490INVT + = (OOT/(. 1)M14S449) * T49099V1. + 594500" =  149/AGNASHO

SINAMAVd ‘BHOONT "INSHLS3ANI ADINIGNI ( AGNASHS)

S879 {GLVHIIS] _ 1S = GON 2b 206r gt Te 0261 _+39NVY
(6°T) 622° = OHY 290° SH1 NV3H 610" = “aS 299° sud

(69STT"2)
Tz0ea * @ZT6s0°  -
60529°2) (8T60T"S) (66set"s) (96652 °5)
Ts220 « %EL850" + TTLd * 862660" + ID x £65500" + BTSTE"- =  (dNOdD * 1017Y9)/AGASHO

SIN3WAVd S3WOONT IN3WIS3ANI 1974I0 (AGASHO)

2180

sz8"0 9fo°0
96L°0 9L2°0

4vis-1  143095V1 ov

S8/> :G3LVWILSA 99 = GON 8 Z286T OL 2D 996T *39NVE
(2°) 2s0°~ = OHY =£49°S = SHTNVAN 2ST" = “a°a°S S88" sud

(CCCI Mda39/C I M4d49 1701 d91907) * T43099V1 +

(92Te" Tt) (622£0°6)
(dN99)901 * ETZE2°2 + «B2SH°TI- = (0M4839/M4d49 )/AdOSHS 1907

SIIIAWIS YIHLO 40 SLYOdWI FLVAIUd ( AdOSHS)

“£6

“26

“T6s

SUS4SNVUL GNV S39IAU3S 4O SLYOdWI “3°II'S


ASASXN * ADXN = ALNX

S1NOdXI SGOOS SN W101 (ALNX)

(C¥SNIC100) S33T8d LNIWND--

UBINSXN + INSXdN/AINDXN = INOXN

-S1¥0dx4 SG009 W101 CINSXN)

CSISv@ VIN) S39Iud 2261

YAYNASXN + G109XN - ASXN = AINSXN

(SISV@ VIN) S39I¥d INIYNI--SLNOdXA SGOOD WLOL (AINSXN)

AN9xdN/ASXN = OXN

(SISV@ dOG) S39INd 226T--S1¥OdXI SGOOD WWLOL (9xN)

= ST -

OSL

"SSL

78


INSSWN - INSSXN = INXL3NN

(CsISV@ VIN) S39IAU3S GNY SGOOS 40 ‘S1uOdXa 13N Wau CINK13NND “662

- T9T -


005 * (T - 4339/8433) = Wad-13

ONTTELS NO WNIWAd GUYMYOs BVTION (Hdd:

1600S°2/833 =

XSQNI 31VE JONVHOX3 1OdS (131

2° OxnUaa x TZ" Oxx( Y3C/YII) % HT" Oxx( Y39/HT9) % GO*Oxx( Y39/NR) = MOU

(G31HOI3M dNO) 31VY 3ONVHOX (MOdU3:

(L9° O/T xx( OT Oxx( YEC/ URI) % T2*Oxx( Y39/839) * 60° Ox YII/NTI) % £2°ORRYIT) = MII

(833 4O4 0310S) ‘SLHSI3M G3XI4 - BLVY 3ONVHOX3 (833
84/T_ :G3LVWILS3 29 = GON 8 SZ6T OL TB £96T *JONVE
22°T = MG VN = SH1T NV3N £00" = "US'S 666° = BSUD

Cozy (y's)
vaadd3 * 699000" +  OSTO90 x 872690" -

(2°T) (s"99T)
(T-)40@3 % 2G000° - ( °006/(G3Y - VISUR) - 133) * OSTO9G x TIzZs0°T +
cm) (st)
(°006/( aaa - Wisua) - 133) * (OSTO9G - T) % Sb6Z6° + 2696TO" = 9168b°2/44

3LVa JONVHSX] GUVMYOd HLNOW 33YHL (Qa E

“£1

OTE

“STs

“ole

acs

- 69 -


‘£>°0 * SUN + 9F°O % SUD + 1Z'O * SUI = MI4SUIC

(S1HOTaM G3xI4 -- S3ILITIGVI1) aiva yvTodo"una ONY ‘1S3UBINI waa AS sn 3OvUaAv | ‘O31H9T3M (mlasaar)

SS°0 * SUN + 8Z°O * SUD + ZT°O * SUI = MOSSUIC

(SLHOI3M G3XL4 --

SWIV19) 31va avToaouna oNy ‘1S3UBINI Waal-1S sn BOVUBAY | GaLHSI3IM (MI4SH5F)

‘SUD * S9°O/TZ"O + SUR * S9°O/2T'O + SUD * 59°0/60°0 + SUN * S9°0/EZ°0 = MASUAr

‘SAHOTIM aaxrd- ‘Salva ‘IS3UBINI Waal-1S 3SVUSAV NOIZNO4 (M4SYsr)

T9>8ET *Oxx( 139
% AMOXdI) * 1.69902" Oxx( 193 % ANOXd3) x LZOEZE*Oxx( 13D * ANOXdD) x 9bEESE"OX*ANOXAN = MLIXddr

SAHOI3M 1YOdXa G3XI4 - S3OTYd SiOdXa JOVUaAV NOTavOd (Mixa)

COANSHdE) 901 * AZLHIME + (227I0d0)901
% AOLWIMT + (ANOXdI)9O1 % ALLWIMT + (ANSXd1) 901 * ATLALME + (134 % AN9Xd3)901 * ABLWLMe
+ (139 % ANSXd2)901 * ADLWIMT + (139 * ANSXd9)901 % ADLWIME + (ANSXdN)901 * ANLWIME = MNdOXdsr

SLHOI3M ANOdWI G3XI4 - S39Td 1YOdXT FOVUIAY NOTGYOI (MUOXdI)

(99° O/T )xx( TZ" OxxdS % ZT OxKdI * 60°OxxdD x £Z°OxxdN) = Midsr

SAHOI3M G3XI4 - YOLV1S30 NOLLddOSaY JOVUaAV NOTFYOS (Madar)

SS°OxxNIN x 82°OxxNID x LT*Ox*NDa = MIINIIC

SWIV19 NOT3Od AG G3LHOT|M - “111N AlIovava JOVUSAV “¥Od MOINDIr)

(839 * AdNSD) 130 %
€S0T°O + (433 * Add939)130 x b£5Z°0 + (43D % AdNDIITIG * 1990°0 + (AdNON)TIG x TS8S"0 = M4dNOJOr

CS" $) SLHOT3M G3XId - NO NOT3UOd NI SONVHO (MadNoaOr)

(dIMO¥)901 * 89E°0 + (dNSD) 907 x ZITO + (d093)901 * TET"O + (dNON)9OT * HBE°O = M4dNOIC

CS°N $) SAHOT3M G3XI4 - dNO NOTSUOS 3OVUSAV GZLHOTIM (MJaNOIP)

SG" OxxdNOdN * 82° OxxdNOdD x ZT*OxxdNOdS = J4ddNOdIr

SWIV19 NOTIUOI AG GALNOTIM - YOAVI4IG JNO JOVUSAY NOTIUOS (ganoasr)

(S39VaaA¥ G3LH9I3M) S3TGVINVA NOIZNOS “IAT

- OOT -

"S69

"£69

"269

“169

“069

“689

"2489

“989


~66A-

TABLE 10

(1) U.S. SUPPLY SHOCK

U.S. GNP (%) “0.1 -0.3 -0.7 -1.1 -1.2 -1.1 -1.0 -0.8
U.S. Prices (%).... 1.2 1.6 1.8 1.9 1.8 1.6 1.3 1.1
Foreign GNP (%)....... . 0.1 0.1 0.0 -0.1 -0.1 -0.1 -0.0 0.0
Foreign Prices (%) 0.1 0.1 0.0 0.0 -0.1 -0.1 -0.2 -0.3
(2) JAPANESE SUPPLY SHOCK
Japanese GNP (%) -0.6 -0.9 -1.0 -1.2 -1.2 -1.0 -0.8 -0.6
Japanese Prices (%) 14 1.6 1.8 1.7 1.6 1.5 1.4 1.3
U.S. GNP (%). 0.0 -0.0 -0.1 -0.1 -0.1 -0.0 -0.0 0.0
U.S. Prices (%) 0.1 0.0 0.0 0.0 -0.0 -0.1 -0.1 -0.1
(3) GERMAN SUPPLY SHOCK
German GNP (%) -0.6 -0.8 -0.9 -1.0 -1.1 -1.3 71.4 -1.5
German Prices (%)..... 0.9 #41.6 2.2 2.6 3.0 3.2 3.4 3.5
U.S. GNP (%)...-eeeeee 0.0 0.0 0.0 -0.0 -0.0 -0.0 -0.0 -0.0
U.S. Prices (%)... 0.1 0.1 01 40.1 0.1 0.1 0.1 0.1
(4) JOINT SUPPLY SHOCK
U.S. GNP €%). cece cece e eee “0.1 -0.3 -0.9 -1.2 -1.4 -1.2 -1.1 -0.8
U.S. Prices (%) 1.4 1.7 2.0 2.1 2.0 1.7 1.4 1.1
Foreign GNP (%)....... 70.4 -0.7 -0.8 -1.0 -1.2 -1.3 -1.3 -1.2
Foreign Prices (%)..... 0.9 #14 #417 2.0 2.2 2.3 2.30 2.3

Notes to Table:

(1) Sustained 1% increase in U.S. price equation residual.

(2) Sustained 1% increase in Japanese price equation residual.
(3) Sustained 1% increase in German price equation residual.
(4) Sustained 1% increase in 5-Country price equation residuals.

Amounts shown are percentage deviations from the baseline path.

Foreign GNP and Price variables are non-U.S. 4-country averages using
multilateral trade weights and constant exchange rate conversion factors


> * (Taisr 13d = TaLsar

‘SU3NSTINOI OL | sauiiiien ONDINVE | ere ‘1NOHS NI ‘BONVHO (Vassar)

> % (3aisr)13q = Jeisar

SUaNSTRuOA "oO ‘SHIVID SNDINVE waa OHS AI 3ONVHD (aaisara

(1+ OTL YE @ O/(HIOTLIOC + O1dditTar) © atte

(°S°N S$) SATLLVIEVIT OF1041N0d waa ‘N07 70. 2018 | cai)

war/( Odi ir - Godi10r) = adie

J3N - SHIVT2 OF10J1¥0d HAG SNOT NI ZONVHD (aadr)

warvatd.iar = Iditor

SATATVIGVI1 OT104140d WU3L ONOT NI JONVHD (TaLIOr)

warvaad.tar = 3dL10r

SWIV19 O11041NOd WHA SNOT NI 39NVHD (IdiT0r)

> * (G9dL1F 130 = addLtar

ONVHD (0941 10r)

GoddL1F + GTIdLIF = add1IF

CS'f $) SHIVI9 OTT041¥0d WAL ONOT 30 YOOLS (aIdLIr)

sar - @iditr - Iweanor + svanar - = dvaNnar

(ALLINSOT dO) - SMOT4INO SLVATYd 13N NI JONVHO (dvJNar)

$8/> Q31VWILS3 0b = GON 8 SZ6T OL od 5960 envy
9

(9"%) 225° = OHN 202° = SHI NV3H 666160" = "Y°3°S G56
(1zoge°T) (g92zg5"T)
GASAG® * S9ZSbT" + JSIGUOIF * 462900" -
(62899"s) (9sbTZ"T) (2999°0T) $302ze | 6)
Ml4Su4r x GZ@SS0° - Asam x SOb0EO" + MN G/bTOO" + Zo06T"Z- = GATELST

(°S°N $) SLTSOd3d N3A 334d (GATELST)

- 981 -

“199

7999

"299

"299

“199

“099

"659


SISV@ dOG - S1YOdX3 SGO0S 3S3NVdVF WW1Ol ( ASXr)

'Q31VWIISI 28 = GON Ib £86T OL 2B 196T
= cwss Tt

s8/> ?3ONVe
(9°2) $62" = OHY 9TZ*6> = SH1 NV3H 2Te" sud

( 22s" 992) (£290°T)
ALPX % 856986" + ZOZSBT"- =

ALIINIGI-IS¥ND SISVG dOG-S1UOdXI SGOOD 3S3NVd¥E WLOL (GAOXr)

AUPX + AICX + AIX + AWK + ANCX = ALCX

(°S°N $) SISV@ 10d - S1¥Odx3 SG009 3S3NVdYF WLOL CALPX)

“19g

"09S

“6S

$009 40 S1¥OdX3 “a II'r

- £1t -


-35-

equation 394 in Appendix 2. This sector also contains the equations
which link the balance of payments measure of total imports to the
national income accounts.

Exports of services, and direct and portfolio investment
income receipts (equations 403-414 for Germany in Appendix 2) are
modeled in analogous fashion to service imports, in sector II.D.
Weighted averages of foreign variables replace the home-country
variables where appropriate. Sector II.&. contain the identities which

define the current account balance and its components.

Domestic Financial Market (Sector III.)

The financial sector of the MCM country models contains two
major components: the money demand equations and the term structure of
interest rates. The modeling of each component is based on the
portfolio approach. The monetary sectors in the MCM are similar to that
in the MIT-Penn-SSRC model of the U.S. economy (Brayton and Mauskopf
(1985)). One important difference is that in the non-U.S. models the
unborrowed monetary base is treated as endogenous and the exogenous
(target) variable is a monetary aggregate, or in the case of Canada, the
short-term interest rate.

In the U.K. monetary system the demand for base money is not
easy to define, in view of various special institutional factors.
Therefore a different model was specified for the U.K. monetary

sector: the short-term interest rate is assumed to be set by the


T9s"< 990°0 (£-)
T9s"< 9Tt'O (2-)
T9s"< oLT°O (1-)
Tos" 2s2°0 (0o-)

Avis-1 143099¥1 ov

S8/> G31VWIIS3 Is = aN, TD £86T OL TD OL6T *39NVE
(2) T2Ze*" = ZOHN (S°T) 802° = COHN 259°S- = SHT NV: yo" = "a'3°S See" = BSYD

(86282°S) (11692°6) Cets2°2T)
<b x £26280" + 20% OSSHTI" + TO x 6TE9OZ' +
(80s0z (2209°9)
TIo4 % T£2TZ" - BWIL * 85900" + (((IJANSXd1/(1)139 * (I)dId9)901) * T43039V1 +
($2°S0T)
CVSNGN9S 1907 * S°T + 92962°6- = = (ANSXd1/A19N)901

csn 8: 307 WOUd ‘SAvOUMT | ‘soos NYWU39 (ATH) “OLE

925°0 tHWhS
£90°0 or0"o (4)
22<°0 £20°0 (9)
9£5'0 8£0°0 (s-)
12g°0 50°0 (>)
$89°0 40°00 (s-)
22° 060°0 (-)
989°T 60T‘O at)
0%2°0 TO (o-)

dvis-1 143099v1 ov

=]

?031VWIIS3 Zé =

s8/> TH £861 O1 6B £96T ?39NVE
(2°22) 6TE" = OH 240°T = SHT NV3H eee960" = ‘wa's see

sud

(8266572)
£b x 229020" -

(1Z65°2) (yes¢0"s)
2B % 696190" + TR x SHTT60" +  ((CIIANOXAN/(1)NID * (1)dId9)901) x T43099V1 +

(6266'S) (61T689°S)
(VSNGN99 1901 * 68TOZ"T + 2ZZ8°9- = — CANSXdN/ANNK)9OT

("in $) ANWWU39 01 SiOx] $0009 “S'n (ASMX) “Sle

066 °T ?HNS:
2eE°T s22°0 (£7)
STt"2 <8T'0 (9-)
20¢°2 99T°O (s-)
210°2 69T°0 (o-)
Tos*2 86T'O (s-)
0s" osz°0 (2-)
56's 925°0 (t-)
ToL'2 926°0 (o-)

AVLIS-1 143099V7 svi

S8/> :Q31VWIIS3 44 = GON TH £86T OL » S3et ?JONVa

(2°) 465° = OHY BZT*- = SHT NVBH 280° = ‘U'a'S sud
(£22256°) (C£TIet"t) (6zo9E"T)

<b x 209220" + 20% SETSb0" + IB x 928290" +
(sze'T) (TOZT"9) (82662°9) (1s906"£)

Tlo4g * T2zSSi° - 12690 x T260fS° - 3WIL x Z529TO" + (VSNdNID)9O1 * STSe>°T +
(9980E"s)
COCCIITI® * CLIANSXdl 1701839 * (I)dId9I9O1) * T430I9V1 + «= Z5266°8- = (CTP ANSXdE)/A9XI901

c ‘sn rs ANVH39 OL S1LYOdX3 $0009) aSaNvavr (ASX) “ole

- 08 -


U3C/QAAGSHE = AGASHE

(°S'N $) SINSWAVd BHOINI IN3WLS3ANI 1939810 COAKGSHE)

@Odr/1OLIOr * S270 + (T-)1GLTer = “10LTer

‘SuINSI3NOd OL SALLIIIGVIT INBMISBANI ‘193010 Cate

ASNYRLLNT * AGNYELHED = ANVALHC

S3IIUd INIUIND - SINBWAVd BISSNVAL CANITELWE)

IMUVST ® SMINSSHT = INSOWT

SIIIUd 2461 - SISVG VIN ~ SIMOdHI ( INSSWT)

AINHAVSE & SAINSSHT = AINSSHT

S33Kue INguUND - SISVG VIN - SAMOS CAINSONT)
SO/> iG31WNTIS2 48 = GON $B Z06T OL 2B T96T *39NVE
Ts9°L = MO BIZ6l = SHI NVA 9BN'SZT = UaS T= OSU)

(280°6699 (L2STE6")
ASSWT = TOTOO'T * %662°92- = SAINSSNT

CALINAGI~ svn) (WSN) S3I1Ud INIVWNI-SISVG VIN-SLUOdHI CSAINSSHE

_§8/> ?O31VNILS2 Q0N IB £861 O1 £B S96T ?39NVH
(£°2) 999° = OHY S9°SBE6 = SHT wat 460° 66T = *Y°3'S 966° = BSYD

(££00°99) (@TTZ2°T)
(Cd /ASHE + SHE) % 2b8BT6* + <25°84E = SNINSSWE

sIsva doa - - Sa9IAuaS ONY JO ‘S1WOGHT CASSHE)

‘SH3r % (GAAOSHT + GAAGSHT) + ASOSHT + AdOSHT = ASH

‘W101 - S39IAU3S 40 SLYOdWI (ASHT)

‘Y3C/OAASHE = AASHE

‘SIN3HAVd 3WOINT IN3HLS:

- 6IT -

“LL5

“OLS

"2s

“ts

"OLS

“69S


-442-

TABLE 5

COUNTRY
Canada........-. -0.54
United Kingdom.. -0.53
Germany.......-- -0.47
Japan..... - -1.02
United States... -0.56


¥3AASHD + AGNASHD + AGASHD = AASHD

SINBWAVE SWOINT ‘INSHIS3ANT CAKSHD)

UWAONASHD + ((AGNASXD)1390) - = CAGNASHD)130

‘SINBHAVd 3WOINT IN3HISIANI ‘1934T0-NON CAQNASHO)

(AN5d9/7101709) *% SZ°O + (T-)7G1789 = 10L7TID

‘SUINSTIVOS OL S3LTIIevI1 ‘193UTd | WUa1-SNOT Wau 40 yo01s errand)

ASHD + ASHI = ASSHD

S3IIANIS ONY SGO009 4O SLYOdHI (ASSWI)

Wil - SIsva doa - ‘S3OTAU3S 30 ‘SIMONI | (ASH)

S8/> :Q3LVWIIS3 26 = BON Tb £96T OL Te O96T_ ?29NVa
(2°) 2E0" = OHY 6bE°- = SHT NVBN 26T° = “43'S sud

(90°¢2) (800T"ZE)
(AdN99)901 % B9HEZLZ° + = LT9OL°E- = — CANVULHD)907

W101 - SINSHAVA UBISNVUL (ANVULHO)

?G31VWIIS3 IS = 8 2861 OL 2B OL6T *39NVY
oes : = Md 620° = SH1 Na 200° = ‘W3°S 225° = 8SuD
(98666°9) (STZ°9)
<b x 912020" - 2B * 0960"
(20629°9) (26290°T) (298989°)
TD x SB68TO" - ((T-)JdNSd9/dNOdD) x » * STOOEO’ + 605640°- = (dNOdD * 1017Y9)/AGASHD

SINBMAVG | ‘BHOONI "IN3HLS3ANT ‘193470 (AGASHD)

s8/> LOaLYMTIS3 ge = GON 1B £067 OL ToT 196T *3ONVY

(9°2) T6éz" = OHM £59°T = SHIT NV3W 280° = “Y'3"S Bsud
(8Z959T")
CCCT= 2899/0 T- 140 /CT= 1d3907 3% L9IBTT =
(Tes022°) (¥Sb6°T2) (1996 *ST)
(0833/dN)/49)901 * S899S" + (dNSDISOT x £56SE°T + B8f665°b- = ((4839/dN)/ADSHI)901

S3OTAURS | RHO | dO SLYOdWI (AOSHI)

“29

“29

“19

6S

“Ls

“9S

SUI4SNVUL ONY S3OIAN3S 40 SLYOdWI *3°II'D

-9-


-4g-

direct investment, and of the differential between home and foreign long
term interest rates:
DLTDC = apt ay £ Yj A (Ej GNPV3) + ag (RL - FRL)
where DLTDC = long-term direct investment outflows
RL = home country long-term interest rates
FRL = foreign long-term weighted average interest rate
Ej = exchange rate vis-a-vis country j
GNPVj = nominal gross national product in country j

Yj

direct investment weights
The equation for direct investment inflows (changes in direct
long term liabilities to foreigners) is similar: ,
DLTDL = ag + a;(L) AGNPV + ag(RL - FRL)
The direct investment flow equations for Germany are 479 and 481 in
Appendix 2. They use the specification presented above, with the
exception that the interest rate differential is dropped from the claims
equation. Equations 480 and 482 are identities that define the stocks
of real direct investment claims and liabilities, which are used in the

investment income equations.

Other Capital Flows (Sector V.B.)

Four bilateral exchange rates are determined in the model: the
U.S. dollar rates of the Canadian dollar, the British pound, the German
mark, and the Japanese yen. These exchange rates are modeled (either

bilaterally or as weighted averages) explicitly in single equations.


9ETs'O * 139 = 439

(Wa76) = X30NT J1Ve 3ONVHOXS ods (139) ‘06%

(89° O/T Jee OT" Oxx( MAP/ ID) % ZT" Ox( Y39I/YID) % 60° OH YII/UTO) % £2°OxKUTD) = MINI

(839 804d a3A10s) ‘SAHOT3M O3xI4 - ava BONVHIXS (439) “6eb

8Z/T_ 031VWIIS3 £9 = GON 8 S/6T OL 2B 096T *39NVE
=2°T = MO = NVH 56° = 26

VN = SHT = aa's "= bSad
(elt)

(WI - SYD) * O2TOZG * 120926" -
(S79) (972)

CCCCT~ 3133/01 }OMAXd49 I/CT- JANOXdS) % 9BS6S°6 + ((T-)JSVAND/(T-AINSOND) * BbBbSZ" +
(T*02) . (62)

(sao - G34) x To206e"- ) = CLVOTSD - T) + (CEC T-)138/( T- }OMAXdS9 )/(T- ANOXdD) % BSTHS"> +

(2's) (s*st)
CCT-)9V3N9/(T- JAINSSHS) * 6£256°2 + (SYD - GIN) * ZBEZT°T- )
cs") (2°T) (et) (t's)
% 1VO149 + £B * 260060" + 28 % S09Z0Z" + Tb x 26450s° + IZ°OI- = d439

WnIWaad 3ONVHOX3 GUVMYOS HINOM A3UHL Cd

SdIHSNOLLV13Y 3LVa FONVHIXZ *3°A'9.

~ £0T -


2° OxXNNE % 6ZOTLT*OxxNNA * £°OXXNND % TZ98Z5°OxxNNN = ML:INNID

(su

3M 30VUL G3XI4) 3LVa INSWAOTAN3NN NOTIYO4 (uianinaa) “gST

Z°Oxx( ISP % ANOXdE) % 62OTZTOxx( T33 % ANOXdS) * £°Oxx( 139 * ANOXdD) * TLS8Z£°OxxANSXdN = ML:IXd49

(S1HOTaM 3OVUL G3XT4) 3DTYd LYOdX3 NOTIYO4 (MLsy%ddD) “SST

aay * 2£4°0 + SUN x 89Z°0 =

SWIV19 NOIZUOS - 31VY LSIYZINI W4aL-LIOHS NOIaNOd (49S 49)

“ST
OZWIMD TOONS % UZHIMIxXOXdMON % CZWIMDC( TIC
% ANSXdr) % 3ZWIMI«(T93 % ANOXdI) % OZWIMI*x( 139 * ANOXdD) * NZHLMOXXANSXdN = MAAXd39
(S1HST3M A18OdHI STGVIVAD | 301ud ‘Wuoaxa NOTaUOS (MAAK) “2st

ee
CS39VUIAV GILHOTIM) SITGVIVA NOIINOI “IIA

-“e-


WALOL - SADIANIS 40 SLYOdWI
WALOL - SIDIAYIS Y3HLO 40 SLYOdWI
S30IAU3S YBHLO 4O SLYOdWI 3LVAIYd
SIN3HAVd INNOIDV SDTAUIS LN3WNYIACS
S1YOdNI 110 TWNIWON O1 IN3WISNray
SISVG dO@ - SLYOdWI SQOO9 NVWY3IS IWLOL
SISVG_dO@ - S3IIANIS GNY SGOO9 JO SLYOdWI
(YSN) S39Iud INFWWND - SIsva VIN - S1YOdWI
S391Ud INFYWND - SISVA VIN - S1YOdWI
(VSN) S39TUd 2461 - SISV@ VIN - S1YOdWI
$30IUd 2261 - SISV@ VIN - SLYOdWI
23d0 WOU4S SLYOdNI 110 40 3YVHS
3NIVA ~ SLYOdWI 110
ALLIN3GI S1YOdNI 110 IWIISAHd NI W431 IWndIsay
AVG Y3d S13YYVa 40 SNOITIIN - SLYOdWI TIO
$39IUd 2461 - SLYOdWI SGOOD NVWY39 TWLOL
(YSN) SY3IOM G3AOTdWINN 40 SNOTTTIN
(SUVA) L3SSV TWIIN3GIS3Y-NON V JO 3411
¥YOSV] 4O SYNCH W101 40 X30NI
SONYSNOHL - 39404 YOSV)
(VS) SONVSNOHL - 2407 aM3- 4173S SNIGNTSX3 - SNOSY3d G3A01dH3
WIIN3GISIY - ‘WIO1S WiIdvVd SSONS 3LVATUd
“WEINGUTSSE-NON - WOOLS W1IdvI SSOND FLVAIYd
WIOLS WiIdvd Sita atyatud
ANSHIS3ANI_ AYOIN3ANI 40 4901S
waals, Ty. WiIdvD SSOYD INIWNYIAOS
OIOLS WiIdVD SSO W10L
(VSN) S391Yd IN3YYND - INBWLS3ANI AYOLNSANI
S30IUd INFYYND - IN3WLSIANI AYOLN3ANI
(WSN) S391Ud 2261 - IN3WLS3ANI AYOLN3ANI
S$391Ud 2261 - IN3WIS3ANI_AYOINJANI
(VSN) S391¥d IN3NUND - ANBHISSANT 3x14 W101
S301Ud IN3YYND - INIWISIANI G3XI4 W10L
$39IUd 2261 — INSWLS3ANI IWIIN3OISIY GaxI4 31VATUd
$391Ud 2261 - INSWLSIANI IWIINJGISAYNON J1VAIUd
$39IUd 2261 - INSWIS3ANI G3XI4 JLVATad
(VSN) S391¥d INFWUND - INAWLS3ANI G3XI4 IN3WNY3IACD
$39IUd 2261 - INSWLS3ANI_G3XI4 IN3WY3A09
$39TUd 2261 - INSNLS3ANI G3X14 1VLOL
(WSN) S39TYd IN3YYND_- SISVHIUNd IN3WNYIAGS
‘S39IAU3S ONY SGO09 NO_39NVIva
WIIN3GIS3Y - (S3ALIN3ONI XVL) SINVUS IN3WNY3A0S
WILIN3GIS3Y-NON - (S3ATIN3ONI XVL) SINVUS IN3HNUIACS
CSN) $391Yd IN3WYND - LINGOYd TVNOIIWN SSOU9
$39Tdd ANFWND - LINGOYd IWNOTIVN SSOUS
dN TWIIN3LOd
(VSN) S39T%d 2261 - 1INGOYd TWNOILYN SSOUS
N99 4O ASVYIAV SNIAOW YALYVNd-8
$39IUd 2261 - LONGOYd ‘IVNOILVN SSOUD
SIN3WAVd 1S3U3iNI IN3WNY3AC9
(VSN) SISV@ VIN - 1T91430 IN3WNU3A09
ZINVIVE 30vVaL
SIIIUd ZL6T - S3SVHIYNd INIWYIACD ‘vad
BLVY VIG AUNSVIAL JOVYSAV NOIIHOS
S3ILIVIGVI1 NOIIWOS AD G3LHOT3M - 3LVY LSTUZINI WURL-1YOHS NOI3NO4
SWIV19 NOI3NO4S AG G3LHOT3M - 3LVY 1S3XZINI WY31-1YOHS NOIZYOS
(SN). 00° T=Z2Z6T - SLHOT3M FIGVINVA AG - S3ITYd O31939dX3 3OvVAIAV NOI3YO4
00°T=ZZ6T - SLHOI3M sav G3XI4 A@_ = 3NIWA LINN 18Odx3 NOIZYOS
261 - 13A31 391Yd NOI3YO4 03193dx3
1=2Z61_- YOLV1430 NOTIduOSdy NOIZYOS
00°T=226T - SWIV19 NOI3YO4 AG oaunoraM - SISV@ dNO - 13A37 391d NOIIOS
NOTLVIINI_NOI3NOS 031939dx3
00°T=226T - SLHSI3M G3XI4 AS - YOLV1I30 NoILdyosay J9VYIAV NOTINOS
$SN ~ HLYOM 13N NOT3NO4
‘SUINST3YOS on SatTirevr) O1104140d IWIINYNIS
Wa 3ONVHIX] SNILVOI4 YO4 AWHNG
‘SLHOI3M aavuL Q3XI4 - dN NOT3YO4 TWNIWON
SLHOI3M 3QVY1 G3XI4 - dN NOI3NO4 v3d
SONVE NYWH3S LV SLISOd3G WV G13H NOTINOS T1V
SWIV19 NOIZYO4 AG G3LHOIIM - NOLLVZIILIN ALIIVdVD NOT3NO4
‘SUINOTINOS NO SHIVID OI104LYOd TVIINVNI4
BLVY_JONVHIX3 JOVU3IAY GaLHOTIM
SWIV19 NOI3NO4 ag Q31HOI3M — 31Va JONVHIX3
Wa/sSn - 31Vu 3ONVHOX] LOdS
1/$SN - X30NI_ 31Ve JONVHIX3 LOdS
womtaeg BONVHOX3 GYYMYOS HINOW 33uHL
NOILVI93d30 JIWONOD3
‘SNOISSIWO ONY SuOuua
SLISOd30 1V1OL
HLYOM 13N IVIINVNI4 NI_39NVHD
MO14d1INO WildVD 3LVAIUd 13N
ANSHISNFOY NOLLVNIVA SNIGNIINI IN3HNU3A09 3H1 4O SL3SSV NOI3YO4 13N NI 39NVHO
AN3WNUZAOS 3H1 40 SL3SSV NOIZYO3 13N NI 39NVHD
‘SU3NSI3N04 Sho: Paso ANSWLS3ANI 193810 NI 39NVHD
‘Su3NoI3i IVI AN3WLS3ANI 193410 NI 39NVHD
S3ILTQOHINY AYVL3NOH “NYOJ Ol “1SNI aay tog 40 S3ILTVIGVIT “1°S NI_39NVHD
S3ONVHD ALTYVd WO O1 3Nd S3AN3S3Y NO 193443 NOILYNIVA GNV UGS JO NOILVIOTIV dod

WNOILINII3¢0

- 112 -

Los ASHS
965 AOSHS.
16s AdOSWO
(90X35) A
(90x3) PavADWS
BE
B6E ASOWS:
665 SAINSOWS
00% AINSONS
Toy ‘SINSOWS
206 INSOWS
(90x3) <HSADSNS
ole ATOSKS
(90x3) 43109N9,
ele 1
Ses
99> YSNN19
(90x34) uNnadT19
29> IH19
295 419
19> 319
69> add
OL NdyD.
iva do
Lo I1y9
2Lo E)
£L>
1s VSNAIIS
2g¢ AIIS
S55 YSNIIO
oss 119
ose VSNAJIS
6s AsI9
L337 ud4,
pa34 YNd4IS
Loe daI9
295, VSNA9AIS
(90xa) 9419
= 419
19s v
Lt Wwass9
(90X3) YLNVESS
(90X32) UYNINVYSS
VSNAdNIS
£oE AdNS9-
99> 1OddN99
YSNdNOS
205, dNIS
Tos di
6st
295 WSN43099
stb 7T
(90x3)
00s Ma!
0S 148439
£05 Mo4Su49
6b GMAXd49,
80S MLdxdd9
66> TdNdd49.
16> M4dN9d49
Tos D4dNdd49
26> aX3N9d4I9
96> Mad49
6b GMN4S
d149
(90X3) ivoias.
9 L4AdNSIS-
sos ML4ddN9I9-
s2b
20S M9INI4I9-
Leb d:
8b Mdua9,
20s 94439,
68> 439
06> 139
8eb CFE!
elb 30939
OaNv39
82h 109
soz ‘SNAAMNGS
98> dv4jNaqo
26> isv4Nqo
6d ‘9v4Nd9
Tab 01705
(740 201709
(90x3) o109
(90x3) “‘WASVsa9,

| NOILvNb3 | IINOW3NH


-45-

MGSNI = imports of goods and services
COL = consumption of petroleum
t = time trend

Again we assume, for lack of better data, that total imports and total
oil consumption both represent imported intermediate inputs. The
assumption of constant returns to scale is imposed in estimation.
Equation 463 in Appendix 2 is the estimated German production function.
The same coefficient estimates are used to calculate potential output,
assuming full employment and normal utilization of capital and labor
(equation 464). Capacity utilization is then defined as the ratio of
actual to potential output (equation 468).

Table 6 gives the coefficients estimates of the production
function for each country. The estimated coefficients on labor hours
have a relatively narrow range, from .6 in Germany to .79 in Japan. The
coefficients on non-oil imports are much more dispersed, ranging from
-08 in the United States to .19 in Canada. This coefficient tends to
reflect the degree of openness of the country.

The level of employment is obtained from the number of total
hours worked using a bridge equation (equation 461 for Germany). The
decision of the firm to hire new workers or to pay overtime to current
workers is not modeled explicitly. ,

There also are equations for the labor force participation
rate in the MCM country models (for Germany, equation 462); the

participation rate is a function of employment, population, and a time


089°0 622°0 (£-)
bee. 3 222°0- (2-)

T90°0 a)
ose 3 o22°0 (0o-)

AViS-1 143099V7 ovT

29/2 #‘G31VWI1S3 Sf = GON 2B Sten gt Te O2eT ?39NVa
(WN) 2628" = OHM WN = SHIT NV3H Z0T° = “Y'3°S sud

(eys")
£b x 22010" -

(LT) (379)
2D x SEO" - TD x oHEO" - — (CCTDANSXAI/( ITIP * (1)TdMdt 901) * T43099V1 +
Cs on) (60°s)
(CANO 1901 * B066Z"T + —69ZEST- = — (ANOXAI/ATCHI907

S3TWLNNOD WIWASNONT | WOH NON woud SLUCdNI SGOOD 3S3NVs

926°0 ?HNS

OLT*2 190°0 (Z-)
og2°2 LOT‘'O (9-)
* 8E1°0 (s-)
029°2 vST"O (o-)
ote'2 SST‘O (x-)
029°2 Tot'o (2-)
OTZ'T 2It'0 a1)
STZ°0 690°0 (0-3

AVIS-1 143099V7 svi

20/2 *O31VHIIS] _ 0» = GON 9b GL6T OL TD OL6T_+3oNvE
(WN) £09" = OHY VN = SHT NVBW 640° = ‘a°3 Bsa
(6°T)
£b % 62250" -
Cts") (s0°S)
2B % 29600° - TD * $580" - (CC TIANXAI/( LISP % (1)IeMd? 901) * T43099V1 +
(98°) (29)
(ANDFI9OT * HTTOZ"T + T986°TT- = — CANSXdT/AT17HI901

CS'n $) S907 WOUs S1YOANI S009 aSaNVaW CATH)

682°0- ors*0- tHNS:
YN WwW L6U'T <£0T"0- (-)
YN YN ozs"T SST‘0- (g-)
499°0 221°0- oos"T 9ST"O- (Q-)
sec '0 SST"0- Ost't 80T'O- (t-)
90£°0 Ott‘o- £40°0 600°0- (o-)

ivis-1 243099v1 4vis-1 143099V1 ov

28/5 faa twATi Sa 2g = +) O86T O1 TH 896T ?39NVE
(WN) 662° = = SHI want 990° = ‘Ua'S 95° = BSH
20°s) UTD (stz")
(CCT )dWOIdEN/( TISWNXdNISO1) * 233099V7 + <b * 9F4850" - 25% 68250" - IB = 628ETO" -

(ot"s)
(VNXSGAGN)901 * SoZ689" + COCCLId® % CLIIICI/CTANSXdNISOT) * T43099V1 +

(982) (££22°2-)
(CdNSC 901 * 2ZZ8TSL" + L9Z6T*L- = CANSXdN/APNX 1901

CSneN ivf OL SLYOdX3 SGOOS “S*N CAMNX)

- oIT -

“£95


968 6>L SbL WMXdNSIN
68 298 998 S98 O4L OT4dNDAN

216 16 MIgdda4n
216 906 948 SZe@ 28 1498 998 S9B £44 242 TLL otia3sn
216 RECEP I

268 = 4aOTNIIN

468 028 922  OTMINIAN

968 YaMaNdIN

868 £24£ 242 TLL MIand3n

206 106 MidId3IN

006 668 MQ4IddIN

988 bLL SAvdaN

gee 288 bss dan

906 498 998 S98 Id1dHIIN

338 9940

g22 Lz 37

606 906 M3130

ole £06 88 128 Oz@ 61e O4L LGL BbL olan
OT6 606 MLdI3aN

@s2 Ts2 922 JNNSGAGN

198 12.
298 dso3Aqn
sz 4
es ¢@2@ uasv4Ndn
ose 648 828 dv4Nan
068 ‘v4Nan
42e 998 9S d3t10n
. 18 899 qian
oze d3T0n
228 998 o2IGn

ole 198 TLL dd39I0N
sze 998 222 Wd99I0N,

seg 088 daaan

see Tee ee 91
628 = wad94an
288 648 do4an
a109340n
yee 818 30N

e280

398 usiragan
eze 42e <2@ 998 azaan
928 028 698 198 d3raan

918 218 698 S98 o2ra0n
Sle TL8 698 998 woraan
ee 698 oraan
<18 saan
s1e 08 Toe a
Loz
ele L8L Wwaansn
21g 08 008 ¢ynon
1s8 43NIn
Ise £68 O28 G52 ZEL B2L 92L 20L TOL 699 205 69 a
506 6f dWO2d IN
TIL 02 AvoIn

298 942 The Xd9dvoN
998 L2L 22d xHOdvON
298

eSL Wdvon
00g 22 40Z 902 SOL 669
zie 918

822 qanen

ste 19 ‘TWwHSsen

928 uvsden

498 wiven

098 6sSe Sdiven

2 UIGHNN NOLLVNDA | JTEVIUVA
= 002 -


A9vIIF + AdvIIC = AVIOT

Sa0Tud ‘INRRIND - JONVMOTIV NOLL@NNSNOD Watav3 (avaar)

AIIAVSC/ALIC = VSNAIIC

(YSN) ‘S301 | INRRIND — AN3WLS3ANI RIOINSANT CWSNAIIF)

de * IIr = ATIC

S30TUd ANTWWND - ANSWISIANI AVCINJANI (ATIF)

AddIAVSf/AddIC = VSNAdSIC

(VSN) "S30rud INRWUND — ‘IN3HIS3ANI G3XI4 3LVAId (VSNAddIC)

dr * daIf = Addie

S39TYd INSWND - INSWISIANI G3XI4 31VAIUd (AddIF)

Udder + UNd4IC = d4Ie

S30Td INIWIND - FUALIONTGX] NOLLGHNSNOD SLVATYd (AI)

AdNSAVSC/AGNOE = WSNAdNOT

(WSN) S39Tud INSWIND - 19NGOYd IWNOLLVN SSOY9 ( VSNAGNOE

AINSOWP - AINSSXP + ADF + ALIC + AAIC + AddIC + AIT = AdNOT

$391ud IN3WND - 1INGOYd TWNOILYN SSOYWS (AdNOr)

INSOWT - INSSXP + df/(AST + ATIC + ASAI + AddIC + AIT) = aNOF

S39Idd 226T - LINGOYd TWNOILVN SSOUS (

S8/> :031VWIIS2 09 >D 2961 O1 6B 496T 2 39NVE
(9°SL>) 166" = OHY 9°bZ298T = SHT NaH tor Tos = ‘Y'a'S 266° = 8SUD

(28692°T) (9Z89T*2) (166Z5°2)
(Aor - ALP - ANSE) * 6TE9Z0" + (df % (T-)dw) * 8x0" + 2°2026E = AdvIIT

sgoTud "INSWUND-FINVMOTIV NOLLdNNSNOD WAIdv3 3LVATYd (Adv39¢)

- 80T -

“22g

“Tes

ozs

“6ts

"STs

“21g

91S

“sts

‘os

“ST

“21s,


S8/> 2031VWIISS 16 = SON 8 Z286T OL 28 0 096T *3ONVti
2ye°T = MO 662°T = SHIT NV3H SZT" = ‘u°a"S 6° = BSUS)
Bb9ZZ°2)
T2o2a « Soblbz" +
CoTT¢e"T) (9222's) (zsTs*9T) (22962T*)
ToEL0 % $69EE2° - (T-JATIX * EHBOTE’ + AIX * TE6568" + 229E00°- = AICH

CALLIN3GI-ISYNB) (°S°N $)- VOVNVI WONS SLYOdWI Sd00S 3S3NVdvr (an)

iad 2Q31VWILS3 06 = GON 28 £86T OL £B 096T *3ONVE
S6Z° ‘SH1 NV3W

(U°T) 22T°- = Zone (2°24) £28" ona 9st’ = "w'a°S S56" sul
£9000") (T06%8"T)
(2-)Ar3x * Ie08a « 6eez9°T - (T-)AraX * Isoed * Tsosee" +
(o0bbs°2) (82622°2) (96965°9) (12126") ©
Ar3X * Is0ed x f2bGs6" + (T-)APIX « T90ZZ6° + APEX * LZIEEO°T + T9E980"- = ARCH

Cs'n so - WN 3HL WOUS S1YOGNI SO009 3S3NVaVe (ASFH)

gseey’? ma qn eyts3 88 = GON Dd 2861 gt TB T96T =39NVY

SHI NV3H fob" = °Y'3"S 666° = SYD
(202292) (1s282°T) (S£5T°9) (2829°2T)
T2e<d * SSSOT"T + TIb4d x SB0zeS" - (T-JAPAX * ZST6E’ + = =ANX * TE9E8Z° =  ANTH

(CALLINGGI-IS¥NB) CSN $)- “s*n 3H | woud ‘S1YOSNT ‘sdo0s 3S3NVdvr canta)

wRAOPWC + WAC x ATOSWT = AOrH

(°S'N $) 33d0 HONS SLYOdWI 110 (aorw)

3031VWILS3_ SE = GON 8 Z86T OL 2B SZ6T :39NVE

(z's) 689° = one irs OTv@ = SHI NV3N 6S8°ISs = “US'S T66" = BSYI
‘£806 °%2) (S995°T)
(OOOT/83ar/1I0d0 * > * BSAVG * TOSHT) ® t2lz6" + = b0S"T2S «== = =ATOOWT

CALLINIGI-ISWN®) 3NIVA - SLYOdWI 110 (AT09ur

yITOSNr + BSAVG/( 10S )130 + TOIr = 1COWr

(oa SNNIOA - SLYOdWI TIO (T09NF)

- str -

“Iss

“60S

“905


Appendix 1:

Table
Table
Table
Table
Table
Table

Table
Table
Table
Table
Table
Table

Table
Table
Table
Table
Table

Table
Table
Table
Table
Table
Table

-69-

Detailed Simulation Tables

Canadian Fiscal Shock
U.K. Fiscal Shock
German Fiscal Shock
Japanese Fiscal Shock
U.S. Fiscal Shock
5-Country Fiscal Shock

Canadian Monetary Shock
U.K. Monetary Shock
German Monetary Shock
Japanese Monetary Shock
U.S. Monetary Shock
5-Country Monetary Shock

Canadian Exchange Rate Shock
U.K. Exchange Rate Shock
German Exchange Rate Shock
Japanese Exchange Rate Shock
4-Currency Exchange Rate Shock

Canadian Price Shock
U.K. Price Shock
German Price Shock
Japanese Price Shock
U.S. Price Shock
5-Country. Price Shock


el6 ses AgSX
ger ef Arax
ges 985 A39X
geez Sb LE A29x
StL TfL 802 Anax
OTz 602 ALaX
216 602 Auax
oss 245 902 arax
02 1202 A93x
802 9% 9f AQ3x
vel Of £5 ANIX
os ss ALIX
916 £5 AYIX
Iss IS £9 ACIX
xs 2s AIIX
66T Zot £9 Aa9X
£tZ st 12 AdwddAn
$22 212 TIL agan
2TZ 002 669 An

TeL O82 Siz AASXN.

282 O82 OL
s@Z <8L 282 AAINOSXN
INOSXN

982 Sez

sez EE
96L SOL All

982 3 INSXN
26L 982

wel <8L T8L

98L BL Tasxn

Ted ISyXN
9SZ JSASXN
SZ = =43VNASXN
062 882 952 $52 <52 252 ASXN
962 waNASOXN
26L 062 ASOXN
Ive £08 862 962 AINSSXN
Tee 664 26 902 SOL INSSXN
LoL WwaNSOXN
SL a109xn
96L SSL SL AINSXN
SoZ wa INOXN
2462 S52 INSXN
ese 252 052 AYNOXN,
838 OSL SbZ
ere 252 SZ AVSXN
ere ISL 62 vOXN
O42 x52 xn
S18 = T4NSWLMN
ose 6¢8 SIs Mn
obs B68 LB BI8 SIL 22 SST NAN
$98 002
198 202 sdann
298 298 Tad3an
£98 TOL Gd:
ZZ siz ALN
222 Tee 2 ALN
<98 298 T98 O98 658 S58 458 SIL DAuLN
998 SIL ALN
T2L aLvain
22L tL TIL
<98 ONILN
*1e £08
Tad
922 aaTavin
Bol 922 A1ddnsn
682 L982 ‘wasn

<0z Y3@HNN = NOILVNDI | JTaVIUVA


-79-

TABLE A-10: JAPANESE MONETARY SHOCK

UNITED STATES

Real GNP (%).....-...ee eee 0.0 -0.0 -0.1 -0.1 -0.1 -0.1 -0.1 -0.0
Price Level (%)..... 0.0 0.0 0.0 0.0 -0.0 -0.1 -0.1 -0.1
Int. Rate (ST)(+/-). 0.0 0.0 -0.0 -0.1 -0.1 -0.1 -0.2 -0.2
Exch. Rate (FX/US$)(%). » 70.6 -0.7 -0.9 -1.3 -1.5 -1.8 -2.1 -2.3
Current Bal. (US$,B)(+/-).. 0.1 -0.5 -1.3 -1.9 -2.2 -2.4 -2.4 -2.1
CANADA
Real GNP (%).......... 0.0 -0.0 -0.1 -0.1 -0.1 -1 -0.1 -0.1
Price Level (%)..... 0.0 O11 0.0 0.0 -0.0 .1 -0.1 -0.2
Int. Rate (ST)(+/-). 0.0 0.0 -0.0 -0.1 -0.1 .1 -0.2 -0.2
Exch. Rate (US$/C$)(%). » 70.0 -0.1 -0.1 -0.1 -0.0 .0 0.0 0.0
Current Bal. (US$,B)(+/-).. 0.0 -0.1 -0.1 -0.2 -0.3 »3 -0.3  -0.3
GERMANY
Real GNP (%) 0.1 40.1 0.1 0.1 0.1 0.12 0.1 01.1
Price Level (%).. 0.0 0.1 0O<£.1 0.1 0.2 0.2 0.2 0.3
Int. Rate (ST)(+/-). 0.0 0.0 O.1 0.1 0.1 0.1 0.2 0.2
Exch. Rate (US$/DM)(%) . 0.0 -0.0 0.0 0.1 0.2 0.2 0.3 0.3
Current Bal. (US$,B)(+/-).. 0.4 #013 0.6 0.8 1.0 1.4 1.8 2.4
JAPAN
Real GNP (%)....... » 70.6 -1.5 -2.3 -2.9 -3.4 -3.7 -3.9 -4.0
Price Level (%).. 70.1 -0.3 -0.6 -1.1 -1.7 -2.3 -3.0 -3.7
Int. Rate (ST)(+/-) 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0
Exch. Rate (US$/Y)(%). . 2.7 3.2 4.1 5.2 63 7.4 84 9.3
Current Bal. (US$,B)(+/-).. -1.1 -1.3 -0.5 0.0 0.3 0.5 0.7 0.7
UNITED KINGDOM
Real GDP (%) 0.0 #00 0.0 0.0 0.0 0.0 0.0 0.0
Price Level (%).. 0.1 O11 0.12 0.1 O11 0.1 20.1 0.1
Int. Rate (ST)(+/-) 0.0 0.0 O11 0.1 O11 0.1 #2001 «20.1
Exch. Rate (USS/PS)(%) » 701 -0.2 -0.1 -0.1 -0.0 0.0 O11 0.2
Current Bal. (US$,B)(+/-).. 0.1 0.0 -0.1 -0.4 -0.6 -0.8 -0.9 -1.1

NOTE: Amounts shown are deviations from the baseline path.
(%) = percentage deviation from baseline
(+/-) = absolute deviation from baseline


-41-

The user cost of capital and nominal wages enter as part of the cost of
production. The prices of nonoil imports and oil reflect both the cost
of imported intermediate inputs and the price of components of final
demand. The unemployment rate is included as a proxy for aggregate
demand slackness. This last term is somewhat ad hoc; specifying a
satisfactory demand variable is difficult in practice.

Equation 448 in Appendix 2 is the equation for the German
absorption deflator. The factor price terms enter in such a way that
the sum of their coefficients is necessarily 1.0, as implied by the
production function.9 The unemployment rate enters in inverse form,
with the expected positive coefficient. Note that the price of net
domestic output (GDPOM) implied by the absorption deflator is also
computed, in equation 457.

Table 4 summarizes the parameter estimates of the absorption
price equation for all countries. The elasticity of wages with respect
to prices ranges from .55 to .74. This range is quite narrow, and is
reascnably close to the shares of wages in national income. The effect
of oil prices on the absorption deflator is consistently positive for

all 5 countries. The unemployment rate, although specified differently

9This constraint holds only if we assume that the prices of nonoil
imports and oil reflect only the cost of inputs, and not the price of
final demand. This constraint is not imposed on the production function
in the other country models in the MCM.


00% % ((M3)901)730 = MHId9

ava Twn - ‘S39WM NI 3ONVHD 3OVINIIN3d (MHId3)

WAS
9IL'T a)
298°0 (0-)

AVLS-1 143039V7 ov

S8/> :Q31VWILS3 Th = BON TB £861 OL 6B ZZ6T *3ONVY
(£°TT) ss@° = OHY G62°S- = SH1 NV3H 900° = “4°3°S 996° = BSI
(808966 *) (EzEeb") (988b25")
<b * 442500" + 25% G20200° - Tb x S96T00" -
(Z8229°T)
3WIL * 296000" + COCOLIND % CIINIDISN - (29SZ2E"2 * OOOT/S9E * (1)1099)901)) * T43099V1 +
(196027)
COND * IDIOT - (29G7E"2 *% OOOT/S9E * 1099 - INSSWI)ISOT) * SSTS8T* +
(990T"0T) (6ST6d")
COXD * 39)901 - (H19I901) x bZBTIZ’ + <b0HS2"- = (4D * 991907 - CINSOWD + dN93)907

‘SuNOH YOY] ATN33M 39VESAV (H19)

- 92 -

wang

“OI


2B xe

ra
is
s
r
7

005°T 29g°0 210°0~ (6-)
OLo°T 002°0 420°0~ (8-)
ozs*T 0z8"0 950°0- (Z-)
069°T Oot *0- (9)
ore'Tt 029°T 190°0~ (s-)
006°T OsL*2 4L0°0- (>)
o22°T “S 980°0- (z-)
O9t'T oze"s 660°0- (2-)
06s" 12 £IT'0- a)
<02°0 O6s°T 92T"0- (o-)

dViIs-1 243099V1 divis-1 143039V7 ov

28/> = ?G31VWIIS3 29 = ob O86T aed. P 826T + 3ONVE
(Te"T) £° = OWN YN = SH7 want 920° = = 8SYD

(9e°2) (20°6)
ASLNVAGD % ZSZHTO" + = (CCT )dHOIdIN/( TISWNXdNI901) * 2430901 + £b x ELSETI’ -

loo" (2*9)
2B * 420290" + TB * STEHS0" -  (((C1)d9 * (1)T39)/( 1)9VNXdNI901) * T43098V1 +
(@s"*sT) (96°9)
(dNS9)901 * ZS6¢T°T + 880Z2°2- =  (SYNXdN/AINX)901

(ss)
<b * 69962T*

(6098s"-)
822910"

(SNS) VOVNYD OL ‘Siuoaxa ‘saoo9 *s‘N (AINK)

82/1 *GaUvHTIS3 09 = GON $8 SL6T gt Te. T36T IONVY
Cyn) ss8° = OWN = SHI NV3W TIT’ = ‘ya's = BSuD

(o°2) (e"9)
(C199/1ar % ANSXd?)/d3)901 * Z2ZGbZ°T +  (dNOdI/VSNAGNOD)901 x LER6T"2 +

(oT) (oT) (v2)
- 2B * 68TS60" + TB x Sobz7G0° + STOS*OT- = ((I3f * ANOXdl)/AICX)901

(Sn$) VOVNYS 01 Si¥0dx3 SG00D 3S3NVd¥r CAIPX)

ss8°0- ?HNS

“0- s50°0- «t-)
O16 *0- 20°0- (Ot-)
8x6 °I- 680°0- (6-)
2g9°2- 860°0- (s8-)
aa <£0T'0- (-)
GLL°I- <0T*O- (9-)
9° T= 260°0- (s-)
Sx2‘T- 280°0- (>)
Loe'T- 220°0- (r-)
Sel I- 290°0- (2-)
6b='0- £20°0- (t-)
1z0°0 £00°0 (o-)

Avis-1 143039V1 svi

28/> =FG3LVWILSI <> = GON 8 O86T OL 2B OL6T = 39NVU

2°T = MG VN = SH1 NV3H SOOT was ezzzs" bsu3
(96LTL"-)
<b £89ZZ° -
zeset*-)
TS « 960600" - ((((€I)I9D * (I)d3)/( 12439 * CIIANSXd9)901) * T43099V7 +
( 99869") (xg2S2"E~-)
(d3/VSNAGNSD 907 * $20S2°T + L228s°9- = ((439 * ANSXd9)/AI9X 1901

(SNS) VOVNVD OL S1WOdx3 ) $0008 | NYHU39 (A99x)

-2-

“6

"8s

“Ls


ua4IMdN + (1341MdN}907
% SEGT'O + (ONSIMdNI9OT * HS9T“O + (I4IMdNISOT * HbEO"O + (14IMdN)IDOT * G999°0 = (34IMdN)901

XJ0NI 39Tdd 31VSIIOHM ADUINA alvOTYOOV (34IMdN)

YANSOXdN + INSSXN/AINSSXN = INSSXdN

S39IAWIS GNY SG009 YO4 YOLVI43d 1uOdxa (INSOXdN)

- O£T -

“268

“Toe


8
°o
F
a

zzt'e 000°0 ae)
220° 000°0 (9-3
220" 000°0 (S-)
220° 000°0 (s-)
220° 000°0 (f-)
220s 000°0 Q-)
zt" 0000 a)
zz 000°0 -)
4VIS-1 143099197
G8/> :G31VWIIS3 6% = GON $B Z96T OL Eb OLET ?3ONVU -
(699%) 656" = OHY 2@T° = SHI NV3H 200° = "U'3°S 166° = BSYD
(962222 ")
(CL)S9) % T43099V7 + = VSNAMNOVYSNAID * 622600" -
Cy60605") (x9950°T) (9L850°2) — (95979°6)

+8 * 619000" - sb 129000 - ZB x* %SSTO0" + S=S660° = VSNAMNO/CS)

‘tT
“2 62o°0
AViS-1 243039V1 ivis-1 143095V7 svl

x
?
agissss

S9/p :G31VWIIS3 95 = GON Tb £O6T OL 2 gest ?3ONVa
(S°T9T) 686° = OHY 2b°2 = SHIT NVBH STO" = “Yd esud

(6926%°2) (eses2°2) (ez9e2")
Tested * Sf2sz0" + TOed x £88220" +  TeSL0 x BBEEO" +

(es2Ts*T)
CCOOT/(IISUD + T1901) * 243039V1 + = (((T)dN93)901) * T43OISV] + =—SSSES*T- = = ( dN9d9/THIISIOT

TH - AlddMS A3NOW (1H)

eet id qaivaTis] 09 = GON 8 SZ6T OL 78 96t ?29NVa

* = SHT NV3H SZ000° = *Y°3°S sud
(y) (o°6)
SUD % 622000" - VSNAMNI/VSNAdNSD * 619960" +
> (s) (2) (37%) Cy)
SWIL * ZbT000" - 8 « S89T00" - £6 * 448200" - 2B %* SZSTOO0" -  S9%b00° = YSNAMNI/UNI9

SIN3GIS3Y AG G13H AINIYYND JO NIOLS (F199)

‘S3LV9IUISV AUVLINOW “V" III

ADRIVW WIINWNIS ILLS3NO0 “III'S

-t2-

on


at/AGAr = GAP

Sa9IUd 2261 - 3WOINI a1GVSOdSIG (GAr)
AGA4VST % VSNAGAT = AGAT

S321Ud IN3YUND - BWOINI JTGVSOdSIG (AGAT)

VSNAVIOC - SNANVUIT + VSNALT - VSNAdNOT = VSNAGAT

(WSN) S33TUd IN3YINI - JWOINT 37avSOusIa ( VSNAGAP

AVIIAVSF/AVIIC = VSNAVIIC

3ar )

- 60T -

“925

“s2s

“oes

“seg


00% * ((d9)9071)130 = dHIdd

aLVa TWOANNY - 13A37 391Yd NI JONVHD 39VINSIUId (dHIdD) “TTT

(WODYVHSI/( CINSSWd9 1901 * (WOCYVHSD - T) - (d2)907))dx3 = WOddD

cvs) (a3A0WSa s.

NOI1dvOSY IILSAWOG ATIIIdWI YO4 YOLV1430 (WOddd) “OTT

((139/2L110d0 1901 * 26££56°O/( 2bEE56"0 - T) - 2H£596°0/( INSIWd9)901)dXa = TIONWdD

“60T

(rxxze°0 ¢ TT OL
O =F) WAS/(( > - PIGNSdIZ(( - FIdNDdD - ( FIdNDdD) % (F-)*xZB°O = O STI- = FIWNS * OOT = dx3d9

‘SNOTLV193dX3 ‘RUVNOLLV NT (axaa3) “80T

INSSWI/AINSSWD = INSSWdD

SISvV@ VIN - ¥ovi1430 ‘TMOUNT | CINsoHd3) “LOT

$8/> :031VWIISI 02 = GON o 2961 OL 2b S961 _*agNve
(o'oT) 58° = OHY 192 “s sud

= SHIT NV3H 920° = ‘Ud
(26225°S) (20665°2) (gs22T°T)
CU T-JANBNdI 901 x SZ2559° +  (ANWdD)SO1 x 26490" + 9ZSTSO°- = (SHd9)907

S3OTAURS | 10: ‘S1YOdNT ¥Os YOLvi4ad | (SWd3))*90T

c S8/> :G31VWIIS3 48 = GON zee ot TB T96T ?39NVY
z°) sz0"- =

OHY S8TT* = SH] NV3H SO" = a°S %66° = SYD
( 2st" S20) (2229'S)
(d3)901 * 22620°T +* OS9TZ0°- = (SXd3)901

SBOTAURS | 40 | siuodxa os YOLVI430 | (SxXd9) “SOT.

= 92 -


oot * 4I¢7nir = NAC

BULVY IN3HAOTAW3NN (NOC)

aw - air = or

(SYI3NIOM 0000T) IN3WAOTGNINN (NIC)
(£6ZZTo") (920g22") (98226'°S)

(oS2>6")
(sb x £1800" + 2b * 966200" + TB x 909200" - <0286°T -

(Z08e2°9) (seb0s"T)
BAIL x 418900" + ((dxt * “OOTI901 - (98E°TTZ * O00T/S9S * 1097901) * 2200G0° +

(8T859°2)
(Cdwr * °00T)I901 - (9BE"TTZ * OOOT/S9E * 109F - INSSWT)901) * 9OTOTT” +

(608s"ET)
(CCdwr % *0OTISOT - (TT*SOZ * 4171901) * ZBb682° + (dT *% *00T)901)dXa + INSOWT - = LOddNOT

CNOLLYNDA HE NI G3LVWILSA SIN3III4S909) dN TWILN3LOd ( LOddNSr}

~ 2st -

“199

“069

"659


GAAGSXr - GAASXT = GAAOSXT

V101 - SA9IAUIS UIH1O 4O SLYOdXI (AOSKE)

S8/> :Q31VWIIS3 49 = SON +8 2e6T aed. 2 228t soy
(s"TT) Sze" = OHY £52°2 = SHT NV3W 8b0° sud

(6TZ90°¢) (S£0559") (6£90T*2) (y§222"9)
<b x Sh0/S0" + 2b % £99600" + Tb * 854260" +  (9XPISO1 x B9LEsL° +
(9825'S) (22082°2) (6975)
(ANOd?/M4NSP /Mddde 901 * 192968" + (M4dNOAPINOT * LTSS"S + BZ6TH°6- =  (dNOdP/AdOSXC)901

S3IIAUIS YIHLO 4O SLUOdXT ALVATUd (AdOSXP)

S@/> :G3LVWILSa OZ = SON ob 296t OL 20 536U FONVe
(S°T) 22° = OHY 606°E = SHT NV3N SST" = bsua

(2£929" 2) (T0SS"ST)
(Mdaar Midst x M4JdNOITI9O1 * 80Z29°T + 65655°Z- = (ANVULXP 1907

BLVAIUd - S1dT393Y UI4SNVUL ( ANVELXE)

0
gc
o
°

Os>"9T = @TO"0
Of>°9T —- Z£0°0
0£>"9T = 9500
Of>"9T = SZ0°0
0s>°9T = $60°0
Os‘9T 2It'o
Of>°9T = TsT“0
Of6°9T = OST“0

ivis-1  143099V1 ova

OnAMeHOR
Tre TY ttt

S8/> :G31VWILS3 08 = GON ob Zeer OS 8 2961 _ + 39NVY
(o°T) SOT" = OWN 260° = SHT NV3N 800° = “US'S L272 bsua
( 12085")
COOT/(TIMO4SU4F) * T43099V1 + 90STOO*- = d24P/AGNASXT

C°S'N §) SLdT3938 SMOINT INJWLSIANI 193UTONON (AGNASKP)

S8/> :G31VWIISa IS = ON 8 286T OL Tos S26U FONE
(2°) 620° = OHN TE2"s- = SHT NVBN Z52° = “ua"S = bsud
(6ZTs6°%) C2g88z5")
£D x £LTSL>° - 20% OT6TbO" +
ebb7e"L) (129T2") (18g02°T)
TD x gogo" ~  (M94NISCI9O1 * LE9HT" + = BEVOS*S- = ( (MOSYAF/I4NOdIE %* IGLTUC)/AGASXE 901

C Ss" ns. $1g13938 3WOONT ‘INSHLS3ANI 193410 CAGASXP

"385

"zes

“Tes

“08s

“64S

‘SUZISNVUL GNV S3IIAY3S 4O S1UOdX3 “Q‘II'e

~ tat -



AINHAVS] * (SNd3/AOSW3 + 9W3) = INSOW]

S30Tdd 2261 - SISVa VIN - ‘SLUOdWI CINSOWA)

AINHAVS3 * SAINSSW3 = AINSOWS

S30Iud INZWUND - SISva VIN - SLNOdWI (AINSONS)

8£/T (gguwitisa 09 = GON 8 SZ6T O1 Tb T96T :39NVY
(WN) 6ss° = SHT NVBN ZO" = “Y°3°S 26666" = BSUD

>°SObT)
(AOSHA + AONE) x 23000" T+

(e") (Ut) UD (£72)
Bb x Zzeb00° + 2B x £00200" + Td x t1s600° + %1S920°- = SAINSSW2

ASHa + ASW3 = ASOWA

SISv@ doa AIIANTS ONY SGOOD 40 S1YOdWI (ASOWI)

AASW3 + AOSW3 = ASW2

W101 - S39TAU3S 40 SLYOdWI (ASHA)

“T2z

0zz

"6Tz

1¢4

“£12


84/T :G31VWIIS3 IS = 80N +) aut a 23 5967 aN
(WN) ZT9° = OHS WN = SH1 NV3W £00° 226° = bSYD

(s"2) (6"9) (T"2)
(T-)0dd3 * 899TO0" +  GGe3 * s2ys00" + ((9- 137004 * (d3 > 9130 - M1N3) * ZZT000" -
(z°t) (e's) (9°2)
(Sua - Gua) % 946200" - IsTzaga x TOzEZz0° +  ( T- )VSNMN3/( T-)VSNAdG9a * £25260" +
- C9") (wt) (s* fos
£b * 229000" + 2B * 905100" + TB x 699200" - 600T00°- = (1T-)VSNMN3/0L3

SINSOISHY AG O13 SATSOdIG 3WI1 (G19) “292

62<°0- T66"0 e98°0 ?HNS:
002°2 800°0- WwW VN VN vN (II-)
009°2 ¥10°0- vN VN VN vN (OT-)
00° 8T0°0- YN YN YN YN (6-)
000°S 120°0- YN YN vN YN (s-)
oot’? 220°0- YN YN YN Ww (-)
006°8 20°0- YN YN vN VN (9-)
00L°9 §20°0- YN YN WN VN (s-)
002°9 220°0- YN. YN YN YN -)
ooe"Z Tx0°0- 006°T gzI'O VN WN (r-)
000°ST ££0°0- 002 "= ££2°0 OOS'OT = ST “0 @Q-)
00°2 ‘540° 0- 00°62 262°0 00S" OT 062°0 a)
006°< 950°0- 00%°2 6Ts°0 Ct) a ae) (o-)

ivis-1 £43039V7 4Wis-1 243029V7 4VLS-1  143099V7

g
s

82/7
e2°T

JSLVWILS3 ou = GON seer te Te E96T ?3ONVa

Ma WN = NV3H STO" = = bsud
CCCI)V1S49)901) * £43030V1 +

(CCI )d05d3 501) % 243099V7 + = (( ( 1)d09d3/( I) VSNAdG93)901) * T43039V1 +

(s°T) cs") (TZ) (2°2)
£b x £>90TO" - 20% SZTSZO° - TB x 9H0STO’ - <9859°- = (003)907

SINJOISIY AG GSH SLTSOdaG GNYWAd (aga) “THz

8Z/T iG31VWIIS3 5 = GON $B SZ6T O1 ZB £96T *39NVE
(WN) @ZE° = OHY WN = SHT NV3N 9TO" = “Y°3°S 466° = BSYD

(ss) (19) (gs)
CCT-)8NIFISOT * F9TIZS" +  (d3)9O1 * HBTTZE* +  (d3/VSNAII)INO] x TSSOLZ" +

(s°2) (6°T) (9°72)
(043 19019730 x 22990" - (GgY3/dYI}901 * e9S6E0" - IvtZAGa x SS9TZO" +

(2°72) (zs) yt) ay
£Bx T46ZTO" - 2B 665200" - Tb x T8T9TO" + 8STZTb"- = (4N93)907

SIN3OISIY AG GTIH ADNAWND (NDI) *08z

S3LV9INIIV AUVLINOW ‘V°III'S

AZWIVW IWIONYNIS ITLS3WOO ‘III’


The Structure and Properties of the FRB Multicountry Model
by

Hali J. Edison, Jaime R. Marquez, and Ralph W. Tryon*

I. Introduction and Summary

The FRB Multicountry Model is a linked system of five
quarterly national macroeconometric models of the United States, Canada,
Germany (Federal Republic), Japan, and the United Kingdom. The
individual models vary in size from 150 to 250 behavioral equations and
identit:ies; also included in the system is an abbreviated sector
representing the rest of the world. The country models are linked to
each otsher by equations modeling bilateral trade in goods, trade in
services, investment income flows, and exchange rates.

The Multicountry Model (MCM) was built in the late 1970's at
the Federal Reserve Board by a team led by Guy Stevens. The volume by
Stevens, et al. (1984) describes in detail the theoretical and empirical
structure of the original model, and analyzes its theoretical and
empirical simulation properties. Since the original model was completed
in 1979 it has undergone a series of modifications, and was
substantially reestimated in 1984-85. This paper describes the current

version of the MCM.

*The authors are on the staff of the Division of International Finance,
Board of Governors of the Federal Reserve System. This paper represents
the view of its authors, and should not be taken to represent the views
of the Board of Governors or of other members of its staff. The authors
gratefully acknowledge the contributions of Richard Haas, Peter Hooper,
Gary Shea, and Steven Symansky in developing the version of the
Multicountry Model described here. Peter Hooper, William Helkie, Sean
Craig, and Guy Stevens gave helpful comments on drafts of this paper;
Margaret Gray and Michael Mabry provided valuable assistance in
producing the final version.


mM
3
m
3
7

92o°T T00*0- (Ts-)
26o°T T00"0- (oz-)
995°T 200°0- (62-)
Lo9°T 200°0- (e2-)
22°t 00°0- (Z2-)

i 00°0- (92-)
Ts6°T 00°0- (g2-)
620°2 §00°0- (y-)
g22°2 '§00°0- (s2-)
£65°2 900°0- (22z-)
ees°2 900°0- (12-)
z18°2 200°0- Coz-)
680°< ‘800°0- CeI-)
sTo"s 800°0- (eT-)
e19"s 600°0- (ZT-)
0s") 600°0- (9T-)
916" OT0"0~ (sT-)
89'S OTO*O- (oT-)
629°9 TIo0*o- (st-)
etZ°Z TI0*0- (2T-)
$22°8 210°0- CtI-)
022°6 o- COt-)
6998'S £10°0- (6-)
06°2 >T0"0- (a)
26L°9 10°0- (Z-)
961°S ST0'0- (9-)
S586'> ‘ST0‘O- (s-)
ors" > 9T0"°0O- (o-)
sIe's 9T0°0- (s-)
006"s 2T0°0- (Q-)
450°= ZT0"0- a)

L°2 810'0- (o-)

4Vis-1 143099V1 ov

S@/> :Q31VWILS3 65 = GON b 296T OL TH 896T FONVY
(9°2) 652° = OHY £02°> = SHT NV3N 220° = “Y'd°S 296° bsad
(LLTLE°) (69Se°ZT) (2222797) Ce9669"8)
TTod * bSTTZO° - sb x Z2068IT’ - 20% E28s2T° - TO x BHBT9IO" +
(622T" OT) (x29e29°E)
COCCI) dNSdfV'( 1 )34IMdNI901) % T43039V1 + (CdNSN)SO1 x 26566" + ZLOT@s*2- = (373N)901

(SN1G) NOLLdNNSNOD ASYINI JLveWSsv (919N) *LzZ

686 °0- 196°T sWAS
119"0 £10°0 129°) pcaary (-)
962°0 800°0 9") 622°0 (9-)
9LE°0 T0"0- 9") 62°0 (s-)
929'°T ‘£51 1Z9°% 22<°0 (o-)
Lge" 60T‘0- 19") L2e°0 (>)
2S6°9 28T‘0- 19") : (2-)
918°S £22 °0- 19") 622°0 a)
loo og "0- 19> Tst'0 (o-)

dvis-1 243099V1 4V1S-1 143099V1 ov

S@/> :Q31VWIIS3 TZ = GON $b 296T OL TD S96T
(6°>) 26° = OHY S6S°S = SHIT NVBN 220° = "Y'a'S 886°

(26TLT*L)
CANONISOT * ZBEE9'T + — CCCCTIdB9dN/( 1) T4NOWdN) x (T)44TYVINISON) x 243099V1 +

COCT-D)AIddSN/((T-T)AIddNSOT + (T-I)AIddNSIT) 1901) * T43099V1 +

(12s2e°9) (969T2°E) (£2062"¢)
(CANNSGAGN)901 * 90006" + = ((T-ININ/(T-JOTMINIINI901 x 90Z0L5" - SOTZ*9- = (14NSWNISOT

$39IYd 226T--SLYOdWI SGO09 13NJ-NON 4O 3WNIOA (TANDWN) “922

$0009 40 SLUOdWI ‘V“II'N

ANNOI0¥ IN3YUND “IT'N

= got -


CALTINSGI-ISWNB) MOY WOU SLYOSNT Sd009 °S°N (AUN)
ASASHN x ASWN = ALN
(VSN) (100) S39IYd LNIYYNI--SLYOdNI SGOOS *S*N W1OL (ALNW)

UBINSHN + INOSHdN/AINSWN = INOWN

(SISV@ VIN) S3IIUd 226T--SLYOdWI SGOOD W101 40 3WNTOA CINSWN)

YAVNASHN + GIOSINN + GTOSNN - ASWN = AINOWN

CSISV@ VIN) S39IYd INFXYNI--SLYOdNI Sd0CS

ANOWdN/ASWN = SN

CSISVG dO@) S3IIYd 2Z6T--SLYOdNI SGO09 W101 40 3WNTOA (9HN)

AT4NSHN + ATSSHN = AHN

(sISv@ dOG) S3ITYd INIWWNI--SLYOdWI SGOOS 1101 JO 3NTWA CASWN)

- 2ST -

Lok

9h

“Sol

“bbl

TEbe

2bL


862°O * b/IdddN/TIGGN + (T-)ddTIGN =

SWIVTS INSWLS3ANI 19394IG 1V3¥ (dd7IGN)

S/COTIGIIN’ OTIGdAN)/C VIOIIGGN - 30IIGGN - OITGGN) + (T-)OdIIIGN = Odz9TGN

ETC) ‘ (Odd0T0N)

$/COTIGIAN/OTIGd4N)/WIIGGN + (T-dWd99IGN = Wd29IGN

ONTUNLDVINNVH --GVOUGY SL3SSV INWIS3ANI 193410 34 “S"n (WddITGN)

/COTIGSAN/OTIGdAN)/dIIGGN + (T-)ddIITGN = dd219IGN

WN3TOUL3d --GVOUEV SL3SSV IN3WIS3ANI 193410 1Wa¥ *s'n (ad3a10n)

*/11dan + (T-)1IGN = 110n

‘S°N NO SU3NSISNOS AG SWIVTD INSWISIANI 193uI0 TWNIHON qian)

~ 221 ~

"LL8

"918

72:)

“ol8

"£18


BWIL *

86s'0

825°0 sIt‘o <69°0
S29°0 260°0 s9T'O
625°0 860°0 e2T'o
998°0 ozT"O 992°0
29°0 S9T"O OUT

4vis-1 243099V1 dvis-1  1430990V7

S8/> :Q31VWIIS3 £5 = GON + 286T aot. 1) 22eT ?3ONVY
= 256

(T'S) T69* = OHA 2£2°T = SH1 NV3H 20° sud
(989ST"2) (92¢090°) (1T9E60%")
<0 * Te22b0° - 2b %* £89T00" + TB x S60TTO" +

(L2os8")
BWIL * 90S6TO" + (CCC IDES % (L)IdMda)/(1)L3F % CLIANDXd? 901) * Z430IVT +

CCCCL)I33 % CI)IdMd3)/( 1139 % CIIANSXd9)901) * T43090V1 +

CTIZ6T*2) (1Z9b°2)
(d093)901 * 99TZS°T + T6s9°9- = ( (139 % AN9Xd9)/A93W)9071

089°0- twas
>25°0 902°0- (2-)
295°0 092°0- (T-)
Tes"0 %T2°0- (o-)

4vis-1 143099¥1 ov

S8/> #O31WWILS3 62 = GON oD 2e6t ge Te SLOT *3ONVa
‘a's sss" bsu3

(2°2) Tob" = OHY 666160" = SHI NVJH Zot” =
(6sesT*2) (ST69E"T) (T66s02*)
. sb x 95/180" - 2b x geGes0° + bx 922/20" -
(e9029"=)
GTSSLO = (CCH -EVTSI % (4-1) TdMdI)/( 4-139 % (9-T)ANOXdI 1901) * T43090V1 +
(92190'T) ——(6ozzgz")

(993901 * E990T'T +# S60b0°S- = (139 % ANOXdI)/AI9XI901
©s'n $) “0° JHL 01 S1¥Odxa S009 NVIOVNYD (A3OX)
T£b"0- Wns
OZe"0- $ro. o- (x-)
Zs0'T-  290°0- = (2-)
26T’s- 62T'0- (t-)
66T*2- 022"0- (o-)
dvis-1 143039v1 ov

28/S_ :G3LVWILS3 2 = GON >) O86T O1 TH SZ6T *39ONVE

(WN) 90£2" = OHY WN = SHIT NV3H 95920" = ‘Y°3'S H1Sb6° = BSYD

(2082°sT-) (99G92"9-) CITT")
<b x SST9OZ"  - 28 % 9SS0T"  - Te x £4590" +
(9te2"8T-)

(d093)901 + ((C(1)833 * (€1)d3)/(1)1I0d0)901) * T43099V1 + T2e90"s- = (1033)901

(aa BANTOA - NOLLaWNSNOD Wo (1093)

“<6T

“26

T6T

‘$0009 40 S1NOdWI “V°II'3

ANNOIDV INSHUND “IT'S



00°0- Ist"o ?HNS
6<0'T 000°0- WN VN (s-)
Zts‘T 000°0- vN YN (-)
298°T Too"o- vw VN (r-)
920°s T00°0- vw vN (Q-)
916°2 T00°0- 220°2 0s0°0 (1-)
B6b°T Too*o- 220°2 TOr"o (o-)

AViS-1 2430391 AVis-1 143099¥17 ovT

S8/> :Q31VWILS3 £9 = GON Tb £861 OL 2D 296T F39NVE
(9°ST) 88° = OHY SEZ" = SHI NVBN SZS° = “U°3°S BTI6" = BSYD

CCOOT * CC T-1)dX3d9 - (T-1)789))) % 243099V1 - +

(sss"9)
CCOCT-1)d9/C1T-TJAGAD = 1)730) % T430ISVT + ‘“CT-)HdND * 60°O + GLZTOB"S = UdsID

S391Ud 2261 - INBWIS3ANI IWLIN3GIS3Y SSOUS BLVAId (dddID) *2

<IT*o- 9S2°0 tHNS

YN vN 022°0 600°0 (s-)

WN 569°2 950°0 (o-)

82 °O 800°0- Syb'bT <£0T'O (-)

oTL'2 £! 22°02 6T'0 Q-)

sts‘2 Ts0°0- 80r°6 96T°O (t-)

. Tto"o 000°0- £56°9 £b2°0 (o-)

AVis-1 243099V1 ivis-1 143039V7 v7

S8/y :O031VWIIS3 22 = GON 8 2861 OL SO H96T 239NIVY
(1°2) 29° = OHY 906°S9 = SHT NVBN 955° = “Y'a°S 866° = BSN

(8o290°T) (1TZ22°T)
<b x $SOIST’ + 2B * S99T8T” +

(6TbZ6*
TD % £699" + COCLTUMND % (CT = COOT/(T)dX3d9 + T/C OOT/(IISUD + 1)))) % 243099V1 +
(268618)
CCIJGAD) % TI3099V1 + §«=6BOTSO"@ = 99

‘S33IUd 226T - JYNLIGN3dX3 NOLLAHNSNOD: BAWATad (39) ‘T

3WOINI 31€VSOdSIG GNV SNION3dS 'S3WOd “V°I'D

30Is Ww3u D1LS3HOG 13000 NVIGYNV


90S

126 S68 S68 T6s GOS Lez Tez

Zz THz
989 «212

£89 222 96T S6T %6T £6T 26T

cit

989

_ 1t6
GOS %6> 68> 645 HEE BIE LIZ IIE STE IE OE OTZ 902 02
G26 LI6 806 L406 906 S06 Isl 269

ELE S2E OTE ETE GLZ TL2 692 L92 492

O12 96T

- Tet -

S6T %6T s6T

£0

sot
s0¢

g68 268 689

6l>

prea
oLz

Tet

oEE
2ss

ate

92e

set

ols

219
86T

169
26T

£05

Tor
Tor

Loz
BLT

SOs
092

205
2982

¥B3GHNN ~NOILYNO3 | JTEVIUVA

E12
zz

2ZT
99

<9T
192

092
OE

05

oe
ozz
205

229
96T

aos
ST

<6

ts2
6st

els

oo:
662
962
262

Oo
99T

Tor
bbz

282
Tez
2et
£364

YINVYSS
UININVYDI
AdN93

4L0ddN93
N93
MSAd093

wAVaGa
UNAVIa03
aaa

VSNAI3
AQ3



YAOXdMOU + ( COXdSWIH)DOT * (5L°0 - Wadd) = (9XdMO¥)907

X30NI 391¥d 1¥OdX3 “M'O'U (SXdMOY) *926

(139 % AMOXd9)907 * 40°0 + (13l * ANSXdl 1907
x 2°0 + (139 » ANDXd9)901 * 270 + (193 * ANDXdI)9OT * SOO + (ANDXdNISOT * TS°0)dxXd = GSXdSWIN

(YSN - 1) § ANSWUND) S3TYINNOD WOW :XJONI aNTVA LIND 1NOdX3 JOVUIAV GALHOI|M (GOXdSHOW) “S26

WIANSXd7 + (GOXdSWOWISOT * (S2°O - WVYdXd1) = (ANDXd7)901

JONI 3NIVA LIN 1uOdXa (ANOXdT) “426

S.907 1I0-NON

YBANOXdI + ( G9XdSWIHISOT * (52°O - WWHdXdI) = (ANOXdI 1907

S3IUANNOD TWIYLSNONI WIN-NON ?X30NI ANTVA LINN LYOdXa (ANSXdI) * £26

YAdIMOY + (dNOSWIH)9OT % (SLO - WWYdIMOY) = (dIMOY)907

(A12-01) MOU 40 SX30NI NOTL9NGOUd TWIMISNONT 40 J9vYaAY G3LHOTaM (aIMOu) *226

((dN991907 * 986050°0 + (dNOF)907
% EOTTOZ*O + (dNIDIIO] * 9264610 + (dNOIIIOT * TES0S0°0 + (dNINISO] * 662TS°0)dxa = dNOSHIW

NO sS3TWINNOD WOH 4O 39VU3AV GFLHOTIM (ANOSHOW) “26

SNOLLVNDI 3OVUaAV 03

- 98T -


-60-

stimulus to foreign real economies, even though foreign current accounts
do improve.

Table A-4 reports the results of the Japanese fiscal expansion.
The results reported here tend to resemble those found for Canada.
Fiscal expansion stimulates real income, which remains above the
baseline level throughout the simulation. Real income is not crowded
out because of the strong accelerator effect in the Japanese investnent
equations and the depreciating yen, which limits the negative effect, of
net exports. The change in Japanese policy has a modest effect on GNP
in the other MCM countries initially, but this impact rapidly fades away.
The Japanese current account does improve permanently, due to an
increase in exports to ROW and and the United States.

Table A-6 illustrates a simulation in which all five MCM
countries synchronize their fiscal policies by expanding simultaneously,
When all countries reflate together the effect on each country's GNP is
greater than if it had expanded in isolation. Inflation is also higher
in all countries under a synchronized expansionary fiscal policy. The
dollar appreciates bilaterally against the other MCM currencies because
of a relatively larger increase in U.S. interest rates. The current
account balance for each MCM country either improves over, or remains
close to, the single country case. In general, the results indicate
that all the countries are better off, in terms of their income and

balance of payments goals, when they all reflate together, However,


-47-

None of these approaches proved wholly satisfactory, and the
present version of the MCM drops the assumption of imperfect
substitutability between home and foreign assets, and uses the open
interest parity condition to explain the exchange rate. (More details
are given in the theoretical section above.) As a result, the capital
flow equations in the model are largely redundant, since the net private
flow is given by the balance of payments identity.

However, the stocks of foreign claims and liabilities are
still used in the model to explain the investment income flows in the
current account, and the capital flow equations are retained to
endogenize these stocks. The modeling of capital flows differs
considerably across the different country models in the MCM, since in
some cases new equations have been specified and in other cases not.

In some cases equations from the old version have been retained which
are not strictly consistent with the new theoretical structure, such as
the equations for the forward premium.

International financial transactions are broken into three
categories in the model: long-term direct capital flows, long-term

portfolio flows, and total private capital flows.

Direct Investment (Sector V.A.)
The change in long-term direct investment claims on foreigners
(DLTDC) is modeled as a function of a weighted average of changes in

foreign GNP converted into the currency of the country undertaking the


/(vIOITGGN - 309T0GN - ODTGGN) + (T-)O03IGN = OdIGN

U3H10--GVOUSY SL3SSV INSHIS3ANI 193410 TWNIWON “S'n (oDIGN) “zZe

*/MIIGGN + (T-)WOIGN = WOIGN

ONTUNLOVANNVH --GVOUGY S13SSV IN3MISIANI 193¥I0 TWNIWON “S°N (WOIGN) ‘Tze

/dd1GGN + (T-)ddIGN = doTGN

WNITOULId --GVOUGY S13SSV INJWISJANI 193410 IWNIWON “S'n (dazan) “oe

ddIgan + WoIGGN + OdTGGN = IIGGN

W101--MO141NO IWiIdvd INSHISSANI 193uIG (9100) “698

TIt‘o Wns
990°T g00°0 (s-)
896 °T 6T0"0 (a)
TOL ££0°0 a)
SOT" d Ts0°0 (o-)

dvis-1 143039¥1 v1

S8/> :G31VWIISA — Lb = GON ob 286T wd. ® rst

(£°) 990° = OHY T6S*Z = SHIT NVBH $95°2 =
(6o29b"T) (60LTSE")
(T-)1TGN * Z6s0z" + = TdddHOTIN * (T-)dDTTGN * 286560" -
(OTST "Z)
CCCT-1)Idadn % (T-T)dNON + T)T3G) * T430I9V1 + «=S0H8L"E- = USTIGGN - WOdvoN - TIGGn

JW101--MOTJNI WiTdv9 INSNIS3ANI 193NTG (1zGGn) “298

SST'T wns
£10°0 200°0 (-)
420°0 ZT0°0 (9-)
S9T"O %60°0 (s-)
21°0 s80'0 -)
6s5°0 esT'O (s-)
§06"0 902°0 (2-)
9s0°T s82°0 a)
Tes"0 eLe°0 (o-)

dvis-1 143039¥1 ov

S@/> :G31VHIISI 65 = GON od | 2961 304 » S261 ?39NVU
869 =

(2£°T) Tez" = OY °Z = SHT NVAW TL") osud
(9990°T)
(UsaITy - TSUN) * 656926" -
( 206609") (xeT98°T)
IG1dHIsN * (T-)ddIDIGN * 9BTSZT* +  OT4DNOIN * (dIdXVS)TIG x LOTOTOTM -
(:989665")
(CC L)OTIGNIINIIZG * (CTIOTIGIIN/( TOTIGdIN)) * T43OIOVT + = BIEeb*S- = xXdSdVIN - dIIGGN

Wn310N13d--MO141NO TViIdv9 INSWIS3ANI 193¥TG (d9TGGN) “298

- 9LT -


(@d94S43)130 = 0248043

THOM 40 1S3Y NO SWIVTD 3LVAINd NOIZXO4 NI 3ONVHD (a9asaia)

433/( 839 % dd49 + dddN + Gddde + YAD * (Id179 + J1SI)) = add4S43

TOM 40 1S34 NO SWIVID NOTIUOI (dd94S43)

£°0 % UID x dd * (dD) 130 + 9°O * dN * (dNITIG + Z°O % HID * dd * (dN9)T9G = adNGsT

E°ORKTYD % S*OXTUN % T*OxRTUC % Z2°OTND = TH4a

aiva ‘1S3U3NI waa 9NO1 39VYSAV NOIZNOS aad

29°0 * SUN + 12°O * SUF + STO * SUD + GO"O * SUD = MO4SHT

(G3LNOIIM GND) ALVY T1I@ AUNSVaUL 3OVEIAV NOTIUOd (wOdSUSS)

SUC * L9°O/HT°O + SYD % L9°0/TZ°O + SUD * 29°0/60°0 + SUN * £9°0/E2"0 = SH4Z

(G3LHOT3M aval) BLVY 111d ABNSVIUL 39VYIAV NOIFNOI (Suda)

-2-

“Ses

“OSE

334

“2a

Ise

“Ose


-92-

TABLE A-23: 5-COUNTRY PRICE SHOCK

UNITED STATES

Real GNP (%)....-..-..e cues
Price Level (%)... on
Int. Rate (ST)(+/-)........
Exch. Rate (FX/US$)(%).....
Current Bal. (US$,B)(+/-)..

CANADA

Real GNP (%)........eeeeeee
Price Level (%)...
Int. Rate (ST)(+/-)...
Exch. Rate (US$/C$)(%). .
Current Bal. (US$,B)(+/-)..

GERMANY

Real GNP (%).......-eeee eee
Price Level (%)...
Int. Rate (ST)(+/-)...
Exch. Rate (US$/DM)(%). .
Current Bal. (US$,B)(+/-)..

JAPAN

Real GNP (%)......-.eeeeeee
Price Level (%)..
Int. Rate (ST)(+/-).
Exch. Rate (US$/Y)(%)......
Current Bal. (US$,B)(+/-)..

UNITED KINGDOM

Real GDP (%)..........-0eee
Price Level (%)...
Int. Rate (ST)(+/-)...
Exch. Rate (US$/PS)(%). .
Current Bal. (US$,B)(+/-)..

NOTE: Amounts shown are deviations from the baseline path.

-0.1 -0.3 -0.9 -1.2 -1.4 -1.2 -1
1.4 #17 2.0 2.1 2.0 1.7
1.4 #15 1.4 1.1 0.9 0.8 O
-0.9 1.0 1.30614 14 1.4
1.10 -1.8 -6.5 -8.7 -11.0 -13.1 -15.
-0.4 -0.7 -1.0 -1.2 -1.2 -1.1 -1.
1.8 2.4 3.0 3.2 3.2 2.9 2.
1.7 #218 #16 212 40.9 #0.7 0
70.1 -0.7 -1.2 -1.5 -1.6 -1.6 -1.
70.2 -0.5 -0.8 -1.1 -1.3 -1.3 -1.
70.5 -0.9 -1.1 -1.2 -1.5 -1.6 -1.
11 1.8 24 2.9 3.2 35 3.
1.9 1.8 1.9 2.0 2.0 2.1 2.
1.9 0.7 0.1 0.3 0.4 0.3 0.
0.9 #0.3 1.2 1.6 1.8 2.3 3.
-0.3 -0.7 -0.8 -1.0 -1.0 -0.8 -0.
14 = 1.7 1.9 1.9 #18 1.8
1.0 0.7 0.5 O13 0.1 0.1 0.
70.20 -2.1 -2.1 -2.0 -2.1 -2.3  -2.
0.9 O11 2.9 3.5 40 47 5.
70.4 -0.2 -0.3 -0.7 -1.1 -1.4 1.
1.4 3.0 3.7 45 5.1 5.5 5.
0.6 #4210 1.7 1.9 2.0 2.1 1.
1.10 -2.9 -3.0 -3.2 -3.2 -3.2 -3.
-0.3 -0.1 0.9 0.6 0.6 0.9 1.

(%) = percentage deviation from baseline

G/-) =

absolute deviation from baseline

rPUARe

NUUNO

ARI onoan

Fwoan


YaAOSKN + STTIWXN - ATIWSXN + AOSXN = AINOSXN

CSISV@ VIN) S39IYd INSYWNI--SidI3IIY JIIAYIS Y3HLO CAINOSXA)

w3T4SxN + TOXKN - AASXN = AISXN

(CSISva VIN) S391ud IN3YUND--S1dT399Y BMOINT OL (ATASKN)

ATIWSXN + AASXN + AOSXN = ASXN

SidI3I3Y JIIAVIS WLOL (ASXN)

WOAGASXN + dAGASXN = AGdASXN

S1dI393Y SWOINT IN3WLS3ANI 193940 JLVATY

ASNASXN + AdNASXN + AGdASXN = AASXN

SLdI399Y JOINT INSMISIANI W101 (AASXN)

XWOdVIN + XOSdVIN + OAGPASXN/(XNSdVIN - BWAGASXN + XOSdVIN - BOAGASXN) = WOAGASXN

(WS — Uv) BSHLO # “4ANYW=-S1dT39IU SWOONT ANJWISSANI 1998I0 (HOAGASKN)

Xd9dVIN + dAGPASXN/(XdSdVIN - BAAGASKN) = dAGASKN

(YS - UV) WAFTOULId--S1d1499IY AWOINT ANSMISAANT 197YIG (dAGASXN)

g8/> *ORLVHTLS3 oz = bd 296T OL 10 Seer +39NVU
"2 = MG = SH1 NVI ego" = “Y'a’s sud

(9ST9°2)
(CT- 9AV9I4N/CT- JASNASXNI9OT ¥ 240625" +

(zg05°T) (9TZ92°2)
(TSUNI901 * ES9HET" + TSZBZ°T- = (9AV9IAN/AINASXNIIOT

$1d13998 JWOONT INSWIS3ANI 193¥TG-NON IN3WNYIACS (AINASKN)

§8/> <Q3LVWIIS3 02 = GON 4d 2a6r OL is B46 PJONVa
s osud

yeg'2 = MG S8T°2- = SHT NV3N 250° = “4"3"
(Ze02°TT)
(CT= 9AVdI4N/(T- JAdNASXNIDOT * G6S295" +
(ST09°2T) (2699°ST)
(TSUNISO1 * £9865" + 688ZE°2- =  (9AVdI4N/AdNASXN)SOT

§1d1399U SMOINT INSWISIANT 193¥TG-NON SLVATYd (AdNASKN)

- 9st -

"eel

"TeZ

“082

OLL

“eld

"LLL

“9LL

*GLZ

“oll


-26-

where
UC = real user cost of capital
T = corporate tax rate
Z = present value of depreciation (tax allowance)
X = tax incentives to investment
R = real interest rate
D = rate of economic decay (rate of replacement)
The measure of the real interest rate, R, used here is the real after

tax rate, defined as:
R= (1-7) i - Pe

where pe is the expected inflation rate. As in the rest of the MCM,
expected inflation is based on a polynomial lag on past inflation. The
modeling of the expected inflation term is explained more fully below.
The German investment equations are numbers 337 and 338 in
Appendix 2. In these equations, the constraint Suggested by the theory
is that GNP and user cost have the same coefficients. This const7aint
gave implausible results in estimation, and therefore the two terms were
included separately and unconstrained. In the equation for German
nonresidential investment (GIFPNR), the first term after the constant is

depreciation on the last period's capital stock -- this puts the


(Coot/aasr x JasNUr + OOT/OLE * (ViNer x Vier + SL x SLE + Wer x Wer + Tur
x TLer) + ooTvaar * (vauur « vaer + sawur x sar + WaNUr « WaEr + Taywr x Taer)) * Too = wr

‘S3AN3SIY GIYINDIY (CHAT) “6T9

0 3873 T N3HL O 83 ZAdur AI = GASAOF

SLISOd30 N3A 3344 NO ‘STOUINOD 4O4d JTSVINVA AWNNG (CASAGT) =“ ST9

Glue 3S73 ZAdur NBHL GLUF 17 ZAdur dT = ASU

‘SLISOd30 NaA 33ud NO Bva ‘IS3UBINI wos axoud Casa) 279

- £20 -


86S°0 240° T82- owns
zor"? S>0°e- 922°T 685°S2- YN (s-)
$86 'O £10°0 89>°2 268°Zs- 00°0 Oe)
209°OT TZ0°0 S8b"> S6T*2>- = 60°0 (-)
£1e8°9T 62T°0 9L6°S 86>°TS- = bb“ (2-)
656 °2T 28T'0 t2°S 008"09- 2Tb"0 69 (1-)
620°TT S%2°0 292" <OT'OL- = HEE"O roa ae (0-)

AviS-1 £43039V7 dAViS-i 2430991 ivis-1 143099V1 ov

S8/> =G31VWILS3 %G = GON 8 SZ6T OL Sb 296T *3ONVY
TET = MO £L°20SZ = SHT_NVBN $62°602 = "U°3°S 66" bsu3
CCDIASWE) x £43029V1 + CCDM1SS8ar) * 243099V1 +) CC L9SGUT) * T43099V7 +

(9ets2°T) (26s08°) C2292) (szes°2)
I2s20 * TOv'se2 + 12020 * 9052°S6 - Ivp9g « 102°942 + 68b°IS9 = 1a1Sr

AVIS-1 143039V7 ov

98/> JaLVWIISS = 24 = GON Tb £86T OL TO a7et ?3ONVa
(9°2T) S8° = OHY £2°088> = SHT NVBH 905525 = “Y'3'S sud
(o>20°T)
CCLIM34SadC) % T43099V1 + = (T-)0ur * SEE"SZT
CoTtZ2"T) CxT62°T) (292g2°2) CT98TI°T)
aur x T£2°202 - AdldNr * SZ80H0" + (T-)ASXE * 9ZT9TES’ + 62°99ZT- = Jas

‘S¥3N9I3Z904 NO SWIV1D ONDINY

Jal 1YOHS 40 WIO1S (JaSr)

eI2"0 tO 22°
ooe"s 2z0°0 WN Ww WW w
002°» 2£0°O vN vN vN
m2 g>0°O VN. 006°2 Biz: o
00L"S 9%0°0 002°0 400°0 00o"s Tzb"0
00s" 6£0°O 000°T 20°0 0000'S 0%9°0
009°T s20°0 000°s 650°0 009s obe'O
oot*o 00°0 002" 60T'O 006"s s¢0°T

Avis-1 £43099V1 ivis-1 243039V7 ivis-1 143099v1 ova

28/2
ott

JGLVWILSS §=—62 = AC) Leg 9h sf eet ?JONVY
Mad =YN = SHT Nea ols" = = sud

CCLIGASXE) % £43099V1 + = =(( L)ISTGYOdT) * 243099V1 +

(2°90 (9°@)
CCCI TSP ~ CL)@aWU)) % T43090V1 + = «ar * MNT x 8295720" + 62068°9- = aTodLIr

alva ‘ONILVO1d -csn $) SHIVID OT103140d | WH31 SNOT 4O WIOLS (QTIdLIF)

(dx3NSd4r + M4SY4P - dX3do - SUC) * £0°O + (CT-)TdE/(T-)TANSddP- 1907 = (M4N3C)9071

(ba Wardva S1VATUd 13N G3LN3ANI) - 31Va “HOXT “USA “1M (Maar)

°499

"959

“SS9

“959

SMO14 WWiLIdvVd Y3HLO “@°A'e

- S&T -


-22-

The General Structure of the MCM
Each MCM country model is organized in sectors and sub-sectors

as follows:

I. Domestic Real Side
A. Domestic Spending and Disposable Income
B. Government Sector
C. Private Savings and Wealth

II. Current Account
A. Import of Goods
B. Export of Goods
C. Import of Services and Transfers
D. Export of Services and Transfers
E. Balances

III. Domestic Financial Market
A. Monetary Aggregate
B. Private Banking Sector Interest Rates
C. Monetary Authorities

IV. Prices and Supply
A. Prices
B. Wages .
C. Capacity and Real Capital Stocks

V. International Financial Market
A. Direct Investment Claims and Liabilities
B. Other Capital Flows
C. Exchange Rate Relationships

VI. Official Intervention and Balance of Payments

VII. Foreign Variables


seTqetuea £uqunoo
JO eBeusae ofuqeuwoes

e4eu Tenuue

qe ‘peqenfpe ATTeuoseas
jou ‘sedotud queuuno ‘sqyun
Aouadund TeoOT JO SUCTITTG

O°L = 2161 ‘uequnu xeput

ueek ued queued

e3eu Tenuue

ge ‘paqenfpe ATTeuoseas
‘saotud queuuno ‘s4yun
Aouedund TeooT JO SUuOTTITG

(seBeueae usyTeuoJ) IIA uojoas

(TeToueuTJ TeuoyyeuuequT)
IA ‘A 404085

saBem pue saotud
(Atddns) AI u0qoesg

seqyed 4seueqUT

seTqequea Aueqouow

(sqexueW TefoueuTJ) III uoqoes


(HOGUVHS3/( ( INSSWd3 1507 * (WOCYVHS]A - T) - (d3)901))dx3 =

(SLMOdHT ‘INOHLIM) NOIid¥OSaY IILSaWOd YOs YOLV1430 (WOdd3)

((133/ZZ110d0 1901 * 61206 °0/( 46T206°0 - T) - $61206°0/( INSONd3)901)IdX3 = TIC

‘TOgNT ‘TIO-NON - YOLV1430 LYOdNI ( TIONNd3 |

INSOW3/AINSSW3 =

SISVa VIN - YOLVI430 1YOdNI (INSONdI!

@N93/AdNS3 = dNSd2

¥o1v1430 dND (dNOda!

d093/Ad093 =

ZanGow¥d JT1S3WOd SSO¥D Os YOVI43G (Agoda)

$8/> ?031VWIIS3 “6s = GON % 2961 OL 20 scot ?JONVa
606°T = MG 220° = SHIT NV3H 420° = ‘¥°a'S sud
(6296'S) (LOS62L°2)
TIb20_* 99¢bG2" = (CCT )OMMAXdS3I9OT - ((T-)13a x (T-IANDHdTISOT) * SH606T"  -
(26%%8"6) (ososs‘2)
CCOMHAXdS31901)130 x 8292Z°T + £0E20°- = (( 139 * ANDWd3)907)130

XB0NI 3N1VA LINN 1YOdNT (ANNE)

S8/> :Q31VWIIS] 68 = GON ZB £86T OL ZB T96T *39NVY
6l>°2 = MQ GZ0° = SHI NV3W 650° = “Y°3°S 995° = BSUD

(9zsss°T) (90286°2)
CCCT- )d09d3 2907 - C(T-3¥94d3)907) * 4OS0H0" - ((Ad093/AGVS33 - AVIL3)901)130 * TS660°T +

se9ze°T) (£29560")
((d05d3 1901130 « Tés92e° - 0S2000°- = (€(¥34d3 9079130

¥4O1V1430 IN3HLSNTAVY 1S03 YOLIVs (vasda)

s8/> ngatwTisa 94 = GON ob 2 2e6r Sts To 276t_ ?39NVa
60°2 = 120° = SHT NVBH £Z0° = "4'3°S sud
(tees"2)
CCCT-9M3)5901 - ((T-)SXd3)901) * O8B0b0" -
(22tss*2) (9S256°T) (29662°2)
(C(139)901)1390 * 29STéT” - ((M3)901)130 * Ts9ses* + S9SZZT*- = ((SXd39)907)199

Sa9TAUaS 40 ‘Siwoaxa | wos wOLv1430 (Sxd3)

-19-

“9L2

“SL2

“OL2

724

"Zee

"lle

"OLz

“692


S30TUd INFWWND - LINGOYd TWNOILYN SSOYS
CNOILONNA NOTLINGOd 3HL WON G3IATYIO SLVWILS3) dNO Ty i1N310d
$301ud 2261 - LINGOYd TWNOILVYN SSOUS
d09 IWNIWON WN (O°T=) 3ZINZSOGNT YO (O=) 3ZINISOXI O1 YaLaWVaVd
CVSN) S39T8d IN3NUND - LINdcid IILs3IWOd SSOND
(WS) S323Ttd INIBIND - LINdOYdd IILSIWOD SSOYD
da9 WN (O°T=) 3ZINISOGNA YO (O=) JZINI9OX3 OL YILaWVYVd
(WS) S39IUd 226T - L9NGOdd ITLSAWOd SSOUS
SUINOIIYO4 AG 1830 YOLIIS IITENd 40 NOILISINOV 13N
NOLLvnb3 41131430 IN3WNYIAOD NI WU3L TwNdIs3y
Y@Sd) SISVE VIN - 1191430 LN3WNY3A09
JONVIV Jqvel ASIONVHOYSW
(WS) S39IUd 226T - S3SVHOYNd IN3WNYIAOS 1va3N39
(Q31H9IIM dN9) INAWAOTGHINN NOT3YO4
140M JO 1S38 NO SWIV1D NOIZNOs JLVAIUd
00*T=226T - X3QNI 1HOI3ZN4 YSNI1 NVWY39
(Q31HOTIM dND) F1VY 11d AWNSVIYL 39VHIAV NOIZNOS
AVY T1Td AWNSVIYL JOVUIAY NOIIHOS
S3LVY 1SFY3INI_WYSL ONO] G3LHOT3M NOTSYO4
0O°T=2Z6T - SAHOI3M 1MOdWI FIGVIYVA - JITYd 1YOdx]a 39VAIAV NOT3IYOS
00"T=2Z6T - SIHOT3M FQVYL — 3NIVA LINN 1YOdx3 sOVNRAV NOT3NO4
00°T=2Z6T - (G3LHOTIM F1GVINVA) YOLV14390 NOILAYOSEY JOVUIAV NOIIYOS
uV3A Yad anapuad = SNTITYSLS GNNOd NO WNIWaed GYYMYOd $sn
O° T=ZZ6T ~_(G31HSTIM dN) YOLVI1439d dNO NOTIYO4
oo T=2Z6T - 13A31_ 39TUd ZOVuRAY NOIFNOI 03193dx3
00°T=ZZ6T - SLHOI3M G3XI4 YOLV1490 NOIIdOSaY 39VYRAV NOIIYOS
AQNAYYND NOT3YO4S NI NOILISOd GYVMYO4 GNVISNA 40 NVE
W101 - S3ILIIIAVI1 O11041NOd NOIZHOS
(Q31HOT3M 3GVYL) dNO TWNIWON NOIZYO4
(G3LHSI3M J0VYL) dNO WW3e NOIZYOS
QTIOM 4O 1S3¥ NO SWIV19 JLVAIYd NOIZHO4 NI_JONVHD
BLVY NOILVI4NI_ 39VU3AV NOIAYO4 G3LI3dx3
‘SxO01S Witdya ALVATUd: NOI3NO4 NI 3ONVH
(LOL ~ SWIVI O11041N0d NOIIYO4
aMaHOS, 43A09 aonvHaxa = SNIMONNOG AINTHYNI NOTIYOS
YSN) S39IUd IN3WUND - INSWISNTaY 1S09 YOLIV4
WS) $391ud INFWWND - INSWISNFAY 1SO9 YOLIv4
cys) 201d AN3WIND _- SISVa VIN - Sorarsans
VIN - S3IGIS@NS IN3WNY3A0S 7
(NOTLYNO: W1LTdV 3LVAIYd 13N aaLaaND) BLVY 3ONVHOX] JOVaSAV OSLHSTIM
CQBLHOTIM GND) FLV 3ONVHOX] FOVUSAV G3LHOIIM
ONITHALS GNNOd/$SN - 31Va JONVHIX3 1OdS
‘ONT THALS anoaresn - BLVY_3ONVHOXI IN3WLS3ANT
T=¢Z6l.- X3GNI 31a SONVHDKA ‘Lods
“ONTTYILS axnoasssn's ALYY 3ONVHOXI GUYMYOS HINOW 3qaHL
ANBWISSANI ‘IWIIN30IS34 NON JO NOILVI93¥d30 JIWONOD3
6°0 = NO Z:£Z O'T = Ti£Z HOMOYHL SIOVILYOW NOILdO 4O NOTLONGOULNI - J1GVIYVA AWHNG
O°T = NO T2Z S70 = $12 - STOWINOD LIGIYI MAN - F1GVIUVA AWHNG
O°E = £269-1'29 S°O = $99 SNOILIIUISIY JONVHIX] NOIZYOd - FTGVIYVA AWHNG
NOILVNO3 NOLLdWASNOD NI F1EVINVA AWWNG
SNOOLS YILUVNH JO GNI - LVOI4 - SWALI LISNVUL 40 409
SNIO1S YaLUVN 4O ON} - SWNVE “HN LV SLTSOdad ONTTY3LS SV3SYIAO
SNOOLS YLN ONS - FLVATUd GNY JT1GNd - SYNVE “N°N LV S1ISOdIG SNITHILS-NON IN3OIS3Y
(VSN) S397Yd IN3UUND - HINOM 13N NI 39NVHS
(VS) S39TUd. INJWWND - HLYOM 13N NI_JONVHD
(M014) SLTSOd30_YNV TWLOL SIN3GIS3Y “X°N NI 3ONVHD NOTLYMIVA
BSLVAIUd ONV orvend ~_SYNVG “N'A LV SLISOd30 1WLOL NI_3ONVHD
(ALIINSGI dO) MO1SINO WiIdvd ALVAIYd LIN
ANSHNUZAOD JHL 40 S13SSV NOIFWO4 13N NI JONVHD
SUINOIZNO O1 SIILIIIGVIT O11041Y0d WY3L SNOT NI 3ONVHD
‘SU3NDIZNO4 NO SHIV1D O1104180d Wal SNOT NI JONVHD
YBHLO - YOLISS ALVAIYd “WN NI INAWLSAANI SV3SU3AO
wre ate =_SV3SU3AO_INSWISSANI J1VAINd “'N
I INBWLS3ANI 1390 - SNOILIVSNVUL Y394SW
swanorsuod OL SAILTIIGVI1 IN3WIS3ANI 193410 NI JSNVHD
‘$MO14.1NO INSUSAONT 5 paura = SNOILIVSNVUL Y39NIW
eouaNer qua NO SHIV19 INSNISIANI 193uIGd NI 3ONVH
SIsva dO@ - SY3d10H Wioraso OL S3ILITIGVIT NI_3ONVHO
WAOL - (ONTTUALS GNNOd) SLISOd3d YO193S ITIANd 40 YIOLS
W1Idv3 IWIINSGISIY 40 AVIIC IJIWONOD3
WALIdV WIINSGISIY-NON 40 AVI30_JINONOD3
SWOOLS Y3LUVN 4O ON ~ SIN3GISIY Aa 013H SLISOd3d_ GNVW3Gd
CSN) S39TUd IN3YIND - SYNLIGNIdX] NOILGWNSNOD 3LVATUd
(WS) S39TUd INFYYND - FYNLIGNIdX3 NOTLdHISNOD SLVAIYd
ALLIN3GI LNNO39V ANRHUND NI Waa TwndIsaa
Wa ANNOIIV IN3YUND
sundelsay A@ Q73H ADNZYUND
ANBHLSNFOY JLVe NOILVZITLIN ALISvdvd
AN3IY3d - 3LVe NOTLVZIIIIN ALIvVdvD
AVG Yad S1ZNNVE 4O SNOITTIW - NOILdWNSNOD 110
waLavM® 4O GN3 - IN3IN3d - SYNVG NO T1V2 4O 31Ve IWId3adS
ANNOIDV INFHUND BATLVINNND
(VS) S39TYd LNFWYND - 3INVMOTIVY NOILdWNSNOD WiIdvd
(WS) S39TYd ZZ6T - FYMLIGNadXa NOILdWNSNOD JLVATYd
SNIINYNIA WIITdIO 40 JINVIVE
JONVIVa SISva
(WS) S39IYd LNIWYND - ALIINIGI dO NI Wud TWNGISIa

NOILINI430

- 902 -

o9L AdNSS
292 LOddN93
<29T dt
(Wav) MsAdd93,
29T VSNAdd93
ToT dgg3
CWvd) MSda93
oot da93
6s2 aoa93
(:90X3) 4343093
<8T 43093
52 qwaoa
(90X3) 94
22s M94NN43
R234 qd34S43
(90x3) 1443
Tse M94Su43
oss suda
2gE W43
crea OMWAXd 43.
62s MLaxd43
s2s OMxXAd43
zt Wud43
oes ‘94dN9d43
92s Midd]
S Mid43
(90x3) vaad43
ete
Tee 44AdN943
ozs ML4dN943
cra q34S043
zzz TMid043
ESE dyd43
d:
(:90x3) $93943
Tt ATWO43
eT Av243
98T AgvS33
(90x3) ‘avSaa
= Mjaa3
STs 94433
Te PEEN
(90X3) ANTRa
its - 13a
gIs 4433
£62 30933
(90x43) I2s2Ag3
(90x3) TTZAga
(90X3) 2T99AG3
(90x43) ‘SNODAGR
(90x43) oouLga
<2 41g3
oe 3003
Z8T VSNMNG3_
14 MNGZ
(90x3) ‘SayNNGS
9 NGS
s0f dV4Nnq3
Sts ov4Nd3
0s 141103
<0S 341703
(90X3) 01103
(90x3) 901103
(90X3) sya13g3
(90x3) 901103
S62 301703
(90x3) 0703
(90x3) 9903
(90x3) YAVIIGR
(90x3) YNAVI303
Tee aga
99T VSNAD3
g9T A23
(90x3) wivaund3
9sz wana
Oz naa
(:90X3) 4aND3
292 N33
Tet 1093
252 ass:
652 Wand
ost AWI93
9ST
90= 4083
0 Wi
(90X3) Arava

1 NOILvN®3 | DINOW3NH


(£8929°2)
BWIL % 94STO0" +

00% * ((M3)907)130 = MHIda

BLVY TVANNY -- S39VM NI J9NVHD J9VIN39N3d (MHId3)

473/(313 - 413) * OOT = NB

BLVY IN3WAQ’

a

16°99

Snamg non
PTT NN

dvis-1 143099V7 ov

§8/> iG31VWIIS3 2 = GON 2B S86T OL Tb S96T
(9°29) G56" = OHY 6S98°- = SHIT NV3H 400° = “Y3°S S6°
(92958°S)
(CC 13d0d3/(1)373)901) * T43099V1 + =6£50E9°- = (d0d3/413)901

39uO4 YORVT (473)

= 99 -

982


VOLTS + 1d113 = d143

iol - SaI1T1FaVvI1 OF104140d NOTIVOS (4143)
DOL73 + 3d113 = d34d

Jvi0L- SHIV19 OT1041¥0d NOTINOS (4943)

s2°O * 101103 + (T-)10113 = 10113

SUINOTINOS OL SITLIVIGVIT WU3L NOT Y3HLO 40 NIOLS (10113)

S$2°O * 3901103 - (T-)90113 = 30173

SU3N9IZNOS NO SWIV19 WH31 SNOT Y3HLO 4O NOLS (90173)

- 99 -

acs

“Tre

ots

"60s


-33-

determine home country exports given foreign country imports. These are
equations 386-390 for Germany in Appendix 2. Again, the U.S. model is
an exception, with behavioral equations for total agricultural and
non-agricultural exports. The Canadian and U.K. models also have

identities linking the value of oil exports to oil prices.

Imports of Services and Transfers (Sector II.C.)

In addition to merchandise trade, the current account for each
country includes equations which describe payments and receipts of
services and transfers. However, unlike the goods trade flows, these
components of the current account are treated on a multilateral rather
than a bilateral basis. (This is because bilateral data on trade in
services is not available for most countries.) Equation 391 in Appendix
2 explains German imports of services other than investment income
Payments (GMSOPV). The specification is straightforward, with real
income and relative prices as the explanatory variables.

Investment income payments consist of interest payments on
financial (portfolio) liabilities to foreigners and income on foreign
direct investment holdings in the home country. The basic specification
for the direct investment payments equation is

MSYDV

RLTDL * PNP ~ 20 * 41 A

where MSYDV is direct investment income payments, RLTDL is the stock of

real direct investment liabilities, PGNP is the GNP deflator, and A


UddIS + YNdSID = ddID

‘S39IUd 226T - INSWISIANI G3XI4 JLVATUd (djI9)

AQ4VSS/d9 * ISD = VSNAID

Ws ‘S39T%d INIWIND - JUNLIGNIKS | NOILdWNSNOD 3LVAIYd (YSNAIS)

dN9d9/VSNAGNSS = VSNdNSS

C¥SN) S39I¥d 2261 ~ LINGOYd IWNOILYN SSOU9D ( VSNdNS9)

AdNO4VS9/AdNSS = YSNAdNSS

(YSN) S39TYd INFWND - LINGONd TWNOLLYN SSOYD ( ¥SNAdNS9)

AINSSWS - AINSSXD + (99 + II9 + 9419 + d4IO + 39) * dd = AdNOD

ANTYYND - LINGONd TWNOILLYN SSOY9 (AdN9S)

(87(7)dNS9 + 0 £Z- = FINNS = 1dN99

@N9 JO JOVUIAV ONIAOW ALUVND-8 (TdNDD)

INSSWS - INSOXD + 89 + IID + 9419 + ddI + ID = NOD

S3OIUd 2261 - 19NGOYd TWNOILYN SSOY9 (NOD)

S8/> :GR1VWIISA 06 = ob 206 ote 20 296T sFONVE
(6°9T) Tee") = OHY 69°08 = SHT Nan <09" = su,
(562£9°2) (ogssZz") (SEE0T6")
(1-399 * £B x 629000" - (T-)¥9 * 2B x 99T000" + = (T-)¥9 x TD * 22T000"  -
(565%6°T) (922TZb") (289°) (8968765) (sze9s"s)
Bx 205852" + 20% G6EST2° + TD x 64219" + (T-)¥D x 685450" + TSZEL"> = d9/VSNAVIID

2LT°0 HS
gss"0 $%0°0 (x-)
2£2°T 6ZT'O (2-)
980°T ott'o (T-)
<o6°T <9T'O- (0-3

ivis-1 1430391 ov

S8/> :Q31VWIISI S> = GON Tb £86T ou wo Teet *2oNvy
(7%) 855° “= OHY %56°S = SHT NVIN ZST°9 = “U" = BSuD

(8Z22T2") (TT22b")
COCTISHS - CIISXS + (1)4I9 + (1990790) * T49099V1 + = =(T-)IINO * TeeeTO" - Ts2°OT = 119

‘$391%d 2261 - INSWLS3ANI AYOLNIANI (IIS)

= ol -

“Lot

“9bE

“Soe

374

2oE

Toe

“Oboe

as34


SLS"0 220°0 (-)
602°0 S60°0 (9-)
806"0 890°0 (s-)
622° 260°0 )
99L°T ZTt'0 (z-)
oTb'2 2510 (2)
E2°2 g9T"O (1-)
909°T S6T"O (o-)

4vis-1 1430991 sv1

S@/> ‘Q31VWIIS3 6£ = GON ob ZB6T OL TD £Z6T ?39NVY
(S°S) Lo5°- = OHY £68°S = SHT NV3N Z0s°Z = “UR'S £85" = BSYD
Cosb056") (96T69°T) (1922£9")
Sb x TS8O9°T - 20% SL6ZS°T + Tb x Z60I°T +
(ybl26°S) (29950°2) (49b22"S)
(1-)WOIGN * ySseeT” - (ugalTa - TSUN) x ZeZ0T9° - IOIHIAN * (T-IWdIDTGN x LZ66cs° +
(569%>°E)
CCC T)OTSdNOANITIG * (CC IOTIGIAN/( TJOTIGdIN}) * T43099V1 + 890EE"6- = xWOdvON - WOLGGN
SNTUNLIVANNYN--MO1SINO IWLIdV3 INSWIS3ANI 193¥I0 (WOICIGN) °998
£2570 tHINS
9%%"0 120°0 (2-3
825°0 820°0 (9)
65°0 1S0°0 (g-)
259°0 190°0 ()
1ZZ"0 990°0 (g-)
968°0 890° (2-)
922°0 290°0 1)
22-0 190°0 (0-)
AVis-1 143039V1 ova
S8/> :G31VWIIS3] 0b = GON 8 2861 OL IB £461 =39NVE
2ye°l = MO Sb8°S = SHI NV3H %6°T = “43'S @b° = BSYD
(£6890")
<b x 490090" +
(928899") (62969°T) (89LLb"S) (1889s"T)
2b x 629985" + ID x £6S05°T + “(T-)JODIGN x 9TZ9T° - (YealTa - TSUN) * ZTZ0eH"  -
(6E55E")
IQIdHIIN * (T-IOdIIION * HHLZH° + (CC TOTSdND4NITIG * CIVOTIGISN/( IOTIGdIN) * T43099VT +
(£s66T" =)
"£S2£°8- =  XO9dVIN - vIOIIGGN - 309IGGN - Od:1GGn

Y3HLO--MOTSLNO ‘WiIdVI INSWISIANI 193410 (ODIUGN) “S98

S3ILIVIGVIT GNV SWIV1D IN3HIS3ANI 193410 “VAN

ADRVW TWIDNYNIS TWNOILYNUBINI “AN

= SLT -


=f) WAS/E( - MINSdE/C() - PIANSdE - ( CIdNOd) % (P-2*xz8°0

(S-3dt % (T+ OOT/dx3dt) = Tar

31va NOLLVIANI avaHv walayne 3NO (Tdt)

(rexz9°O ? TT OL
0 ‘TT- = PWNS * OOT = dx3dr

BOVUIAV ONIAOH - SNOILV19adxa AUVNOTIVIANI (dxadr)

CWOTRVHSE/( CINSSHd? 1907 * (WOGYVHST - T) - (d&)901))dxX3 = WOddr

(S1¥OdHI INOHLIM) 39THd D11SaWOG YOs YOLVI3d (WOUEr)

AC T3722 110d01901 * %¥T892°0/( oyT892°0 - 1) - %yT89L°0/( INSSHdl)901)dxX3 = TIONG

SAWOdHI TIONON CIIONNES >

‘SNINSSHI/SAINSSME = INSSWdT

NSOW

dNOP7AdNSE = dNOdr

woivi43a Aonaodd TWNOLLWN | ‘Ssoud (dNSdo)

Tar/qanoude = ANoWde

X30NI ‘BNTVA ‘LINN AYOdHI (ANSWdE)

Se. matiyarisa 29 = GON 28 £86T O1 SB OL6T *39NVY
806°2 = 810° = SHI NV3H 400° = ‘4°3°S 218° = &SYD
(96620")
<b x 6y9TTO" -
(99862°T) (680ST*T) (6T40*oT) (9Zeze°2)
28 x O£TSO0" + TB x ¥ez<00" - (C0 )901)130 * £28896" + 852500" = ((Id3d~)901)130

CALTIN3GI-: TS¥N®) "¥30NI 30rd | a3MNSNOD (Id3dt)

~ O&T -

“959

“£29

"2s9

“ts9

"059

“629

“829

“229


ANOHdI/ASHD = SHI

saorud 2261 - SLYOdWI Sd009 NVIOVNYD WoL (SHI)

UBASHD + YFI/VALIW = ASWD

saorud INawUND - “SIsva | dO@ - S1¥OdWI Sd009 NYIQVNVD Wwio1 | ory

AMIN + ANI + AIIW + ADIN + APIW = ALN

sas)  SIsve 4100 - S1YOdWI SdcOS NYIGVNYD Wwio1 | CAL)

S8/> :Q31VWIIS3 28 = GON 8 2961 O1 28 T96T *3ONVY

HLT°T = MQ 660°02 = SHIT NVBW 206° = “USS 966° = BSYD
(Lye"Ts) (90022°9)
(T-JAINX Shiite: + AIK * GOS9Z*T + 99ZET°T- = ANI

(SNS) °S°N WOUd SLYOdNT $0009 | NVIOWNYD | CAND)

- ot -

“0S

“6b


S8/> :G31VWIIS] $6 = SON 2B £86T OL TB 096T =
(270) TeZ* = OHY 222°6 = SHT NVBH S8z° = “Ya'S £66"

(6900° 9s) (66552°S)
e9TUN * bOsSZ°T + 269168" = HUN

268°0 wns
50'S Tl0"0 (II-)
£0°9 £20°0 (OT-)
£0°9 450°0 (6-)
£0°@ 94070 (s-)
£0°@ 250°0 (-)
50'S 690°0 (9-)
20'S 0g0°0 (g-)
20'S 260°0 (-)
50'S £0T"O (z-)
20'S STT"O (2)
20'S 921°0 a)
$20°@ ETO (o-)

dvis-1 1430301 ov

$8/> :Q31VWIIS3 @£ = GON 2b £06 Ot i) E961 ?3ONVY
= as 19

(2°ST) 28" = OHY £T°Z = SHI NVBH bbS* = BSUD
(9z0050°) (99800°2)
dxX3dN * 226900" + ((I)TSUN) x T49090V1 + Tes9z'T = goTun

ALVY 1S3U31NI ONO INJWNYAACS Wal ONOT (aoTuN)

£28°0 NS
oe2"9 T10"0 I~)
0e2'e 120°0 (oT-)
oe2-@ 2£0°0 (6-)
o8z"9 240°0 (s-)
oe2'9 £50°0 (-)
ogz'e £90°0 (9-)
ogz"e L0°0 (s-)
osz'e 80°0 (y-)
og2"9 §60°0 (s-)
og2"e 90T'0 (-)
oe2"e 9IT"0 1-)
oe2"e 22t-0 (o-)

AViS-1 143099V7 ov

58/5 OatMHTisa 82 = GON 2B S86T OL od 1 Enet ?3ONVY
(e°TL) 18° = OHY £>°@ = SHT NVM ISs* = “Y'a°S osaa

C1L9S2°T) (2S9TT 2)
dxadN x £66822" + ((IISUN) x T490INV] + E2G6T°T = TUN

31Va 1S3U31NI Noa Vwv WuaL-oNOT (Tun)

5809 jouwatisa 06 = GON 2b s06T OL 6D 096T =39NVU
(2°9) 21h = 2Z°9 = SHIT NVBN £4S5° = “Y'3'S 996° osaa
(92022°S) (2222"92) (22e625")
CQONN/48N) x B£8°96 - GUN x Z6byS6° + HeSTeO" = TSUN

Da S3AUISTY FFI GALWGANI) JLvY T1Z@ AUNSVSUL HINOW-= (dun)

"608

“808

“20

“908

salva ASJYZLNI GNV YO193S SNIWNVE FLVAIUd “a@° IIIA

- 99T -


(ybz9°0T)
‘2 * <oTSs0" +

2B *

(22ZT0°2)
22v0LT*

+

gas * (OOT/aguuYD - T) = GOND

S3AUIS3U ‘SS31 SIN3GIS3Y AG G13H S1ISOd30 GNVW30 (aaNa)

S8/> :G3LVWILS3 9 = GON 8 Z86T O1 SB £/6T *39NVE
(Z°T) 682° = OHY 906°S = SHT NV3H TIO’ = "Y'3°S £66° = B8SYD
(9292°0T)
£D. % GbZ2650" +
(2UZs°Tt) (s210°s9) (8002 °0s) °
Te x Tes2s0" + (9Ns9IS01 x S7980'T + s9LZE°S- = CIT@Za * @uns9 + 4Y9)907

) S3AN3S3Y GININSIY IWNLIV (4ud)

G19 = GsUNUVS + GSO x GSYYYS + G19 « GiswYS + GGS x GaYNYs = Id

srz°O
gss°T 9T0°0
fs0°2 =. Stoo
199°2 020°0
6zb"s £20°0
29¢"> $20°0
bee's 220°0
819°S 620°0
6es'S Ts0°0
2420'S £20°0
S69°> s£0°0
292° 220°0
268°s 0+0°0O

dvis-1 143099V1

s87> scalyat isa 62 = GON 286T OL Te. Sper + 3ONVY
(s°8) 62° = OHA T6e"Z = SH NVAW ces = was esud
(e9ssz"s)
<0 x T9ObEZ" +
(£6020°T) (62620°8) (TS6T9"8)
TR x 2ype0" + ((T-I)SU9) * T43099V1 + SUS x £26092° + 6ST6"S = WO

SLVY 1S3YaINI W321 SNOT Cs)

- 6 -

“Tob

“6k>

“8b


96L°0 Wns
YN IIl'o N (s-)
YN OZT'O YN (@-)
YN 922°0 YN a)
YN 292°0 YN (o-)

dvis-1 243099v1 ivis-1 1430991 ov
(CCT)dNINISOT) % 243099V1 + = (CC TIMONUN - CIITSUN) x IT@Z0) x T43099V1 +

(WN) (WN) (WN)
BWIL * S65400° + (TWHd1vN)901 x TéTsO°T + 980292" = (4N/a90N)9071

CVIWN-THN) SLISOd30 3WIL Y3HLO (a90N)

96L°0 £10°0- WHS
YN IIl‘o YN 100°0- (-)
YN yaary YN 200°0- (2-)
YN 922°0 YN 00° 0- a)
YN 292°0 YN §00°0- (o-)

dvis-1 243099¥1 ivis-1 143039V1 ov

gZ/T :qa,WMILSa 95 = GON oD se6r ss TD 296T ?39NVa

(0) 256° = OH WN = SHTNV3H 200" = 91e° = BSYD
(VN)
g@oqaagn x 6eZ0TO" - (((T)dNONISOT) x 2490991 + = ((I)TSUN) * T43099V1 +
CN) WN) (WN)
AWIL x 965500" + (TvHd1vn - T)901 * TeTsO°T +  906200°- = (dnvaan)so7

SIN3QIS3Y A@ O13H SLISOd3a GNYW3a (aan)

9%0°0- 959°0 ?HNS
vN 600°0- YN 0920 (s-)
YN T0"0- YN £270 (Q-)
VN T0"0- YN 960°0 a)
YN 600°0- VN 6LT'0 (0-9

Avis-1 243099¥1 4VLS-1 143099V7 ova

BZ/T *QRLYHEIS3 95 = be] seer Oty 1, Z296T FSONVY
(0) 298° = OHY = SH1 NV3W coo" = BSuD
(WN)
CCCLITSINI9OT) x 243099V7 + = (CC 1)9NI9O1) * T4¥0INVT + = ZZ2T9TZ*- = CdN78NINISOT

SIN3QIS3Y AG G13H AINAYAND (YNIN)

"208

Tos

“008

S3LVIIUSOVY AUVL3NOW “V'III'N

- 291 -



UBINSWN + INOSHN + I4SWN = INSHN

CSISV@ VIN) S39IUd 2Z6T--SIN3WAVd 39IAN3S W101 CINSHN)

Y3NOSHN + INSOWdN/AINOSHN = INOSHN

(SISV@ VIN) S39IYd ZZ6T--SAN3WAVd 3IIAY3S Y3HLO (INOSHN

YANISSWN + T4SWdN/ALSSWN = T4SHN

(SISV@ VIN) S39IUd 2Z6T-- SIN3WAVd 3NOINI YO1IV4 (14SHN)

UBINASHN + AINOSHN + AISSHN = AINSWN

( SISV@ VIN) S39IYd LN3YNI--SLN3WAVd 3IIAYIS W1OL (AINSHN)

YEAOSHN + ATIWSHN + AOSHN = AINOSHN

(SISV@ VIN) SH9IUd INFWNI--SIN3NAVd 3IIAN3S YAHLO (AINOSHN)

WAISSHN + ADASHN - TONN - AASHN = AT4SHN

( SISV@ VIN) S391Yd INFYWANI--SINIWAVd SWOINI YOLIV4 (ALISHN)

- 9ST -

"692

"B9L

"L9L

99h

“g9L

“992


922z°0 shins
985°2 %0°0 (z-)
98g°2 890°0 Q-)
985 °2 90°0 (1-3
98s °2 s>0°0 (o-)

dvis-1 143099V7 ow

JALVWIISS 98 = GON 2b £86T OL TB Z96T 239NVY
wa zoo" = ‘ya's

81o°> = SH] NV3W T= Sud

(8T0"2T) (¥6S05"6)

((T-)37N)901 * s0zezZS" + (HIN * 31N)901 * ZTTTOH” +

(s09se"Z) (ezszsT")
BWIL * 298000" + CC (CIDHIN * (1)37N)I901)790) * T49090V1 + = «9F89TTO"- = (37N}907
SNOITTIN--C(NVITIAID WLOL) LN: “soe

C£82S2°T Cszsze: Ctosyot:) (4000°2)

(xb * 822200" + Zb x 286000" - Tex TOz000" - 3WIl * »zEz00" +
a (22£90°2)

COCT-Id WN % EES" 161901 - (SLHE°Z * OOOT/S9E * (T-)SND14NIDO1) x OO9ZEO" +
(90292°T)

(CAIN * £EG"T6 1901 - (SLHE°Z * OOOT/S9E * SNI14NISO1) * BS6EE0" +
(92992°T)

COCT-Id WN * EES*TEISOT ~ (S2HE°2 * OOOT/S9E * (T-ISNITAN - (T-)INSOWNIDOT) * 9962270" +
(80Ts2"9)

COMIN * ELS"T6 ISO - (SLE°Z * OOOT/S9E * SNOTAN - INSOWN)ISO1) * 9SS0° +
(1z82°22)

(CGN *% EES°TE6ISOT - (b6°T % 4INISOT) % 222292" +

(Z0T%2"S)
O68S°T + (dW * ££5°T6)901)dxa + INSOWN - = LOddNON

WIINSLOd “S°N (LOddNON) “be

S8/> :G31VWIIS3 68 = SON TB £86T OL bY 096T *39NVY
= ‘was 86° = BSYD

(9°SE) $06" = OHY %E2°>- = SHT NV3H 00°
(£8£S2°T) (szszse") (1OBy0T") (4000°2)
<b x 822500" + 2b x 486000" - 1b x 102000" - 3NIL x %zez00° +
(22£90°2)
COCT=)d IN 3% CT-ININIGDT - (SZHE°Z * OOOT/E9E * (T-)SNIT4NIZOI) * 0O9ZE0" +
. (90292°T)

CCA * NINISOT - (SZHE"Z * OOOT/S9E * SNI1INISO1) * SG6ess0" +

(92992°T)
COCT~)d IN CT-ININIGOT - (S25E°Z * OOOT/S9E * (T-ISNITAN - (T-)INSOHNISOT) % 996220" +

(0TEz")
COA IN %* NINISOT - (SLHE°Z * OOOT/S9E * SNITAN - INSOWN)ISOT) * 9SG0° +

(1Zs2°22) (Z0T%2"s)
COdAN % NINISOT - CHIN * F1NISOT) * L42229Z* + 2O068S°T = (dN * NINISOT - CINSOWN + dNON)901

(4013S SSINISNG WYV4I-NON) 33AOTdN3 Y3d SYNOH (HIN) “soe

ANSWAOTdWS ONY S397 “a AI'N

- lt -


warvaivaunor = Ivaunsr

BONVIVE | ‘INNO29¥ ANININS (TvEYNor)

yar x CIVENVULr + Ivasr + Ivor) = aivaunor

Con $) a9Nviva INnosov INZHUND (aTvEUNor)

YAC/COWAC/ANVYLWE ~ GANVULXC) = TWaNveir

BONVIVE INSWAVE USISNVUL CIVENVULE)

INSSHT - INSSXf = INXL3NC

‘$39Idd 2261 - (SISVa VIN)

SA9IAUS GNY SOOO 40 S1YOdXa 13N ( INXLINT)

ASOHr - ASOXF = Twasor

S3OIA¥3S ONY S009 NO JONVIVa (-Ivasor)

¥3ar/9W3C/(SWar * (OAAOSHE

+ GAAGSHT) + ASOSWT + AdOSWT) - YAr/9XAP/(9X3F x (GAAOSXE + GAAGSXE) + ADOSXF + AdOSXT) = ‘Ivasr

- $21 -

S3OIAU3S NO JONVIVE (Ivasr)

war/CQASHr - GASXr) = IWaor

SJONVIVE JdvaL (Ivor)

"209

*T09

009

"66S

*L6S.

S3INVIVE “SII


2£600°T * 133 = 439

XB0NI a1VY JONVHOXA 1OdS (139) ‘ebt

-2 % (C2-)SVAND + (T-)9V4NI)/( T- JASWD = Z3XI4909

Calva a3x14) 3ONVHD ava SONVHIXS 031934x3 4Os ‘AxOud (23xI4309) “LT

00% * (T - Gv31I39/139) = 1vO14309

(GLVY ONTLVOTS) JONVHD 31VE JONVHOKS G319adx3 YOs AMOUG (1v014309) *96T

£10°0- £10°O 922°0 965°0 Wns
00S"T 900°0 oos*z 200° 0- 00b°0 £52 '0- 00s "2 us (2-)
006 "0 §00°0- 000°T 00°0 00S°0 £5°0 008"0 922°0- (I-)
002" £10°0- 000°S 9T0°0 ooT*o £60°0- 009°S ex0't (o-)

AVIS-1 %43099V1 AViS-1 £43099V1 ivis-1 243099v1 ivis-1 143099V7 avi

84/1 :G31LVWILSS 09 = GON 8 SZ6T O1 ID T96T :39NVE
<£°T = MG VN = SHT NV3H TO” = “4w'3°S £26" = &8SUD

(ts) (t's)
££2290 * ((T-)d9ND * LETT6O" +  dOND x GZ4060°- )

(9°2) (2°2)
+ (T-)d ND * T8E950" - dOND * 99TSGO" + £2290 * ((1)9VINGD) * b49099V1 +
CCLI9VANGD) % £43099V1 +  ££2290 * (( T-I)I39) * 2430091 +

if (9°)
(€T-1)139) * T43099V1 + = BTOT2°- * s2z90 + Sysees* = aVva1I39

X30NI 31VY JONVHIXT LOdS 037 (GV3I1I3I) “SoT

3

SdIHSNOILV13Y 3LVeY JONVHIXE *I°A*


VSNALS - VSNASJISD + VSNASD + SNANVYLS = VSNJ3099

(VSN) SISV@ VIN - 1191430 IN3WNYIAOD (VSNJ3099) “£9

9414VS9/d9 * 9419 = YSNADIII

(VSN) S39Tud INJWUND - INSWISSANT O3XT4 INSWNUBAOD (VSNADJTO) *295

994VS9/d9 * 99 = VSNASD.

(YSN) S30Tud INJUUND - SFUNLTGNIGXS INGWNUGACD (YSNASD) “Tos

S875 of matisa gs = 2b seet oh £0 eet *agNyY
(9's) 909°= = = SHI nwa 400° =
(20009°¢) (12062 "¢)
bx 849120" - 2d x OZTOTO* -
(29257) (£2626") (6z898") (965618)
TD * 208920" - ANID * 649902" + AUD * 255929" + 968bTZ" = VSNAdNOD/YSNALOD

YSN) S¥9TUd ANSUUND -- 3NNTAIY ANAWNUIAGD TW1O1 (VSNALD) ‘095

SO/>  G3LVHIISI_ 9% = GON | Tb £861 on w, eet _*39NVE
(2) 965"~ = OHA BZE°92 = SHIT NVBN 668°2 = “YC bsu2
<b. *
(298229°)
OT/(OZ/(F 11ND * O ‘6T- = CIWNS * 2/(( T-)GGd9ND - GAdOND - (T-)VSNLGIGD + VSNIGIAD) x 261950" -
2D *
( 986092")
OOT/(O2/(F TED + O f6T- = FINNS * Z/((T-)GdOND - GGdOND - (T-)VSNLGI09 + VSNIG3G9) x TZTSO° +
TD *

(92206")
OT/(O2/( F199 = O f6T- = FIWNS x Z/((T-)BadOND - GAdOND - (T-)VSNLGIGD + VSNIGIGD) x ZTOSZZ* +

(1689°2T)
OT/(OZ/(F TES * O S6T- = FINNS x Z2/((T-)@d9N - GadOND - (T-)VSNLGIGD + VSNLG30D) x 9999Se" +
(19289°s) (peoTs"s)
OOT/SUD * Z/(( T-}GGd9ND - GadOND - (T-)VSNIGIGD + VSNLGIGD) x H9STIT’ + TITST'>- = dI99

65S

MM. ae Seer 3ONVY
osu

§8/> ‘QR1VWIIST SF = GON 8 296)
(9°25) 666" = OHY Z5°2Z2 = SHT NV3N 146°9

wo

(1es25°9)
<b x HBET'LZT -

(eT9Ts"9) (8296'S) (e62zTT°T) (eZlo°Z)
2b x 6955°6T - Tb x ISTZ2°ST - dD x OOT/419 X NNO x BbTZIO” + dI99 + TONES =  SNANYUID

(WSN) 0193S BLVATUd 01 SUaSSNVUL ANSWNY3A0D (SNANVULS) =“ 8Ss

801935 LN3WNU3A0S

-9oL-


Zot Tot 82T 20119
s2t ¥N34dI19
ott SIT Hq2
6Tt It It 61 412
SIT II <IT ERP
zt <2 O2T 2 adv
eet $20 Zt £ UNdyD
<££ <2 4 dD
zt 22T 9x2
zt 6IT 9IT ce
ez 42 st 9 AIIS
stg II
ez 22 2t VSNAddI3
2m é 9 AdsID.
ozt ot 2 Ud4dI3
Tet ot £ uNd4ID
1 or Ss dal:
e2 L242 YSNAS4ID
s2 62 £2 9 Ag4ID
22t <2 9413
2 9 ASD
2 waso2
Z2t YINVESD

92T

ee s@ Ob ef Ze 9F “42 12 O2 ST Z > VSNAGNSD
$89 90S 6/5 IZe OT BS Z 9 INSD

126 S68 S68 68 O£L SOS OZE BIT 9IT SOT 98 95 Of SE BT F £ dN9D.
92 «Sz 43099
ze os qWwao2
2s 9:
SST 201 MLANNID
SST ST AdSaAD

vot OL 14>
oot SbT 149
Zot OL 349
Zot ToT 349

Ost 43a39

$89 249 LOS 90S SOS 6b 68 6b

Ost 2 6 89 9S 45 6b 0b Er)

9oT  SbT ava1r3a3
G26 916 906. 406 906 OfL 269 169 16S 90S

Goo 24E 62S BLE EZ ZT ST 9HT SbT GOT £0T 66 Ob

16
EE LXE IZE OFE GTIE STE OT BHT GET ET

201 os 82 de 9f 133
92 S2T 30939
9ST OaNyv3a>

SEL ST " SST T69A02
£51 Tze9Add
StI  SIYdxXAdD
cca g01AG3

96 d9NQD

Ist dv4Na2

IST 6>T Sot Ist ov4Na2
Sst <I ££ IST 1109
2st 2st Ist 3d1103

Isl 621 19 1109

Ts 920 $2 901703

OL $s 2st 1v014309
Lot 88 23x14302

22 4AVoa09

921 YNAVI309
yaaa)

68
S668 aad
wi ol 6 > VSNAQ2
6 e 9 AID
+8 waunsd
46 68 Se 4wnoo
92 6T AQWNI3
git wand3
868 468 OSL 205 BIT 9IT £ 32
ott 9It Ib SE 1033
gz +t 4 Av322
s Ss T
ee Lo nad
Ist ravaNnog>
s2T UNTVE)
S6 92
56 vo

YI@NNN «NOILVNDA | JTEVINVA

SNOILYNDI ONY S3TGVINVA 40 1SI1 JONINI4IY SSOYD
- set -


-53-

Experimental Design

Four types of simulations are analyzed: a fiscal expansion, a
monetary contraction, a depreciation of the home currency, and a supply
shock. The baseline used for these simulations specifies the paths to
be followed by the components of GNP, prices, exchange rates, and
interest rates in each country. For the most part, these paths are
based on forecasts obtained from the OECD Economic Outlook for December
1984. We extrapolate the growth rates projected by the OECD for the
first alf of 1986 through 1990. Exchange rates and interest rates are
held constant over the projection period, using 1985Q4 data. The
baseline path is generated using actual and forecasted values for all
the exogenous variables. The residuals of these behavioral equations
are added back to make the endogenous variables follow their constrained
paths. The baseline solution runs from 1982Q4 to 1990Q4; each policy
simulation begins in 1983Q1 and is continued until 1990Q4.

The first set of policy changes considered is an autonomous
increase in real government purchases. To standardize the simulations,
real government purchases are increased by one percent of baseline real
GNP starting in 1983Q1 and sustained over the next seven years. In all
countries except Canada, the path of the nominal money supply is eld
unchanged during the simulation. (The monetary aggregate being targeted
differs across countries; the target is M1 in the United States and the
United Kingdom, M2 in Japan, and central bank money in Germany.)

In the Canadian model, we assume monetary policy is set so as

to maintain approximate parity of real short-term interest rates between


002°2 60¢°0
00s "2 095°0
00o"s £56°0
o02°< 682°0
ooT‘o 220°0-

4ViS-1 143099V7

?Q31VWILS3 09 = GON 8 S/6T O1 TO T96T *39NVY
OHY YN

8Z/t
(WN) 622° = = SHIT NVBH 680° = ‘Y°3°S 909° = BSYD

CCCCL)I39/01 133 % CLIANSXdI)/011d91901) * T43099V1 +

(oT) CZ"). aay
To290 % GLHS2T° - T2220 * B24H90" + ITOLG * 466200" -
ivan 9) (s°Tt) (wu
T2020 * 226661" - TE2L0 * ESbTbT° - (dNSdI/VSNAGNSD)SOT * HSTEST" +
(zs) €3a 9) (>) (s't)
bx T6260" - 28% 922850" + TH ZSzeZT° - LOZbEL*- = (C133 * ANSXd3)/AI3X)S01

(SNS) WOYNYD 01 S1¥OdX3 SGO0S “WN (AIX) *9E

T02"0- Wns
oss‘o- gT0"0- (£-)
089°0- £0" O- (2-)
020°L- 090°0- ar)
062°0- 80°0- (o-)

4ivis-1 143035V1 ovl

28/5 :Q31VWIIS3 2¢ = GON %B OG6T O1 TB SZ6T = 3ONVY
(Tevet) 9Ts2° = OHM WN = SHT NV3N 220° = ‘Y°3°S ZeZT6° = BSYD
(g0°2T-) CxU'tt-)
<8 * S9S2T° - 2B GSLGZT"  -
(s0° (£0°222-)
TO * £000" +  (dN9DISOT + (((1)dI/( 1) 1OWL3ddII901) * T4IOISV] + BOSET*S- = (1033501

(Q@N) 3WNIOA - NOLIdNNSNOD 110 (1099) “St

ANNOIIV ANZNBND “IID

-t-


-67-

References

Brayton, F. and E. Mauskopf, "The MPS Model of the United States
Economy," Economic-Modelling, vol. 2 (July 1985), pp. 170-292.

Danker, D., R. Haas, D. Henderson, S. Symansky and R. Tryon, "Small
Empirical Models of Exchange Market Intervention:
Applications to Canada, Germany, and Japan," Staff Studies
135. Washington: Board of Governors of the Federal Reserve
System, 1985.

International Monetary Fund, Direction.of-Trade.Statistics: Yearbook, ~
Washington, D.C, various issues.

Edison, H.J., "The U.K. Sector of the Federal Reserve's Multicountry
Model: The Effects of Monetary and Fiscal Policies," The
Manchester..School (forthcoming).

Edison, H.J. and R. Tryon, "An Empirical Analysis of Policy Coordination
in the United States, Japan and Europe," International Finance
Discussion Papers 286. Washington: Board of Governors of the
Federal Reserve System, 1986.

Frankel, J., "The Sources of Disagreement among the International Macro
Models and Implications for Policy Coordination," National
Bureau of Economic Research, Inc., Working Paper Series No.
1925, May 1986.

Haas, R., "MCM Intervention Functions," Federal Reserve Board
unpublished memo, January, 1981. ,

Helkie, W., "A Forecasting Model for the U.S. Merchandise Trade .
Balance," International Finance Discussion Papers, Board of
Governors of the Federal Reserve System, forthcoming, 1986.

Helliwell, J. and T. Padmore, "Empirical Studies of Macroeconomic
Interdependence," in Handbook..of.International.Economics, Vol.
II, edited by R. Jones and P. Kenen, Amsterdam, North Holland,
1985, pp. 1107-1151.

Hendry, D.F., M. Morgan and F. Srba, "GIVE GUIDE," Oxford University,
unpublished, October, 1983.

Hooper, P., "International Repercussions of the U.S. Budget Deficit,"
International Finance Discussion Papers 246. Washington:
Board of Governors of the Federal Reserve System, 1984.


(SN) S1YOdNT _SG009 NYWUIS W1LOL NI S301 JO 3YvHS
($SN) SLYOdWI SGO09 NYWY39 IWLOL NI NVdvVr 40 JuvHS
(SSN) SLYOdNI SG009 NVHYR9 WLOL NI S3IMNNOD TWIMLSNGNI WIH-NON 4O 3YVHS
(SSN) SLAOdNI SG009 NYWH3S W1OL NI “4° 40 aYVHS
(SN) SLHOdNT SGO09 NYWY39 IWLOL NI _VOVNVD 4O 3YvHS
SNTUMLIVINNVW NI 3LVa 39VM ATYNOH
aLVY_IN3WAOTdWaNn
WIINIGISIY - Wildvd 40 1809 YaSN way
WIINAGISIY-NON - W1IdV3 4O 1SO03 Y3SN_ TWNIWON
WILN3GISIU-NON - TWLId¥3 4O 1S09 YasnN_ way
VSN) 3AN3AZ8 INSWNYFACS IWLOL
OILVY XVL 3WOINT JLvaOdyOD
OILVY XVL ANON TWNOSY3d
(VSN) YOL93S ALVATYd O1 SY34SNVAL INSWNY3ACS
BONVIVE_INIWAVd US4SNVaL
BLVAIUd - SIN3GISIY Ad G13H SLISOd3d WIL
ANBHNYZAOD AG 013H SLTSOd3d 3WIL
AWLOL - SIN3QIS3N A@ 013H SLTSOd30 3WIL
AVG Yad S1auuva 4O SNOITIIN - 110 40 Sy9O1S
(Q3AOH3Y SLYOdNT) dNO JO FYVHS ITLS3WOd
W101 - SIN3QIS3Y AG G13H S1ISOd30 SONIAVS
ANNOISY 3DTANIS NO_3ONV1VE
SWOONI 31GYSOdSIG TWNIWON 404 IN3WISNray WNOSVaS
‘S1YOdX3 “IWNIWON YO4 IN3WLSNCdY TWNOSV3S
HLYOM 13N 404 IN3WISNTOY IVNOSV3S
SLYOdWI TWNIWON YO4 IN3WISNTOY IVNOSV3S
SUBRIOM GIAOTGWANN YO4 LNAWLSNCGY WWNOSV3S
ANSHISIANI AMOLNAANI 403 IN3HLSNCOV IWNOSV3S
ANSWLS3ANI_AYOIN3ANI 404 IN3WLSNTOV TWNOSV3S
ANAWLS3ANI_3XI4 TWNIWON 403 IN3WISNTOV TWNOSVaS
ANSWNYFACS AG ANSHLLSZANI @3XI4 804 IN3WISNTdy IWNOSV3S
WNIWON 4YOd IN3WLSNPGY TWNOSV3S
aunuranaaxa. MNaHNUaAOS Od IN3IWLSNCdY WNOSV3S
NOLLdWNSNOD TWNIHON YOd INSHISAPGY WNOSVas
ASNOW YNVE TVULIN39 40d INAWLSNraY TWNOSV3S
BLVY LISOda0 3WIL
BLva LISOd30 SONIAVS
aLVY 111d AYNSVRUL HINOW-s
SLISOd30 3WIL NO OILVN 3AN3S3Y GauINDIa
SLISOd3d SONIAVS NO OLLVY 3AYaSIY Q3YINIY
$1ISOd30_ONVW30 NO OLivd 3ANaS3Y_GaxINDIY
S3ANISIA G3IYINOIY 4O 3NIVA GALVINIIVI
S3ANaSIY G3ININIY WNLIV
SBILIWIAVIT 193xTG WY31-9NOT 13a
‘SWIV13 13310 WH31-9NOT 1V39
BLVa 1S3YaLNI_WY31 SNOT
S3ANaSaY GINOI 33u4
SAN3W3YINDIY BAYISIY $Z6T YO4 LINNOIDV O1 WEIS O1 LNAWSNrY
BLVY GYV@HOT
AVG 43d ST3ukva JO SNOITTIWN - NOLLINGONd 1IO_ 30ND ITLsaWoG
AXOYd 13A37 39TYd G31939dx3 GVAHV Y3aLYVNO 3NO
00°T=ZZ6T - X30NI 3NIVA LINN 1YOdX3
SCNVSNOHL - NOILV1NdOd NVWYa9
00°T=226T - X3QNI SANOdWI_IO-NON 4O 391Ud
00°T=2Z6T - X30NI 3M1VA LINN. 1YOdWI
00° rezet ‘= SISv@ VIN ~ YOLV1430 1YOdWI
00°T=ZZ6T - X3QNI 391Ud IWIMLSNONT
00°T=2Z6T - YOLV1430 AINGONd TWNOILYN SSOUD
4AN30Uad - YV3A-NO-YVIA_- NOTAVIANI 4O 31Ve G3193dx3
00°T=zZ6T - (G3A0WRE SLMOGHT } aha) 391Ud 40 3YVHS ITLS3WOd
61 = X3GNI 331Xd Y3WNSNOD
ya WENN = s35vm NI 3ONVHD 39VIN3IU3d
ava were = 73A31 331Yd NI 3ONVHD 39VINIIU3d
JLva_TWANNY - TH NI 39NVHD 39VIN3IU3d
ai TWANNY - dN NI 39NVHD 39VIN39U3d
(YS) 3LVY TWANNY - AJNOW NVG TVUIN39 NI 3ONVHD 39VINIIUId
00°T=226T - YOLV1I30 NOILduOsEY
NVES30NNa BML 39 eae, 43HLO
3N TVNIWON
iit 43N 1V3U
ANJHLS3ANI AUOLNSANI ONY 3X13 4O_ SN TVA Wad
SLaSSV WIONWNTS i. Rey
YNV@S3ONNG 3HL HLIM NOILISOd ANSHUBAOD 413N
ANNOI9V ‘WWLIdv¥3 IN3WY3AGD 13N
ANSWNUBAGD 3HL JO SL3SSY NOTZYOI 13N 40 XIOLS
s390Iud 2u6t = = je VIN _- S39IAU3S ONY S009 40 SLuOdxa 13N
|AUISIY SS31 SINIGISIY AG O72 ‘SLISOd30_ ONVW30
= AlddN'S A3NOH
Bt =_AlddN'S A3NOW
TH Q13H A13LVATUd
TH - AlddNS A3NOW
BLVAIUd - SINSWAVd U34SNVaL

SAN3WAVd S3WOONT INSWIS3ANI LO3NIGNT
SIN3WAVd 3WOINT IN3WLS3ANI 193410

NOILINI430

- 212 -

(90X32) IWLMS:
(90X3) CHLMS
(90X3) IWLM9,
(90x4) BWLM9
(90Xx3) OWIMS
09> MO
59> NO
gl> 4oNns
LL> ANN,
92> yNONS
09s VSNALS
(90X3) SANLS
(90X3) AULD,
9st ‘SNANVULS
61d WENVaLS,
> dd19
(90x) 9019
Leb (res)
(90X3) 1
(90X3) woauvHso
eb ass
9b qWwaso
(90xX3) AGASYSS
(90x43) AINK4VSS
(90x43) MNAVSS.
(90x3) AINHAYSS
(90x3) Aldvs
(90X32) AIIdYSS
(90x3) T4vso
(90x43) AsdIAvSS.
(90x3) 9414VS9
(90x3) AdNOSVSS
(90X32) 994VS9
(90X3) AQ4vSO
(90X3) wad4vso
95> BWILUS
Loo ASUS
(90x3) GLUaS
(90x3) asuwas
(90x3) aaua4s
6rd ST)
Oo a
284 101789,
osb 901.789
seb
gsb
95> rays3aus
(90X3)
(90X3) 1
65> Td9
iS Anexd9
(90xX4) dod9
95> WIONHdS,
1s ANSWdS
Sb INSOWdS
6 dIdS
sab dNSd9
855 dX3d9
iso wWoad9
25 Id2d9
L9> MHId9_
go> dH3d9
<2> THHIdS
£gs dNOHIdD.
Lob WadH3d9
Sob dd
444 ‘agHLod
89s
ols MNO,
L9E YSNDIMNS:
99 VSNAIMNS-
695
(90X3) ‘@ad9N9
(90X3) VXOND
26> VINO
£354 INXL3N9
Toy GONS
22> <ho
Tso 2
62> dThS
Osh Ai
= AdNVALNS
(90x3) ASNVELHS
Sos AASHS
<6e AGNASHS
26k AGASHS:

NOTLYNO3 | DJINOWINW


-28-

The remainder of sector I.A includes the real GNP identity
(equation 341, Appendix 2), and a series of identities defining nominal
values of national income variable. Equation 354, in Appendix 2,
defines disposable income as net national income plus net transfers from

the government and foreign sectors.

Government Sector (Sector I.B.)

Real government spending on goods and services is exogenous in
each of the models. However, total government expenditure is not,
because government transfers are endogenous. Government tax revenue is
also endogenous. The MCM aggregates over all levels of government, —
local, regional, and national, so there is usually only one tax and one
transfer variable in each country model.

The general specification of the transfer equation is:

TRANV = ag + a,(UN * LF/100) * P

+ ap(L) [RL * (GDEBT - NGP)] + a3(POP * P)
The first term captures unemployment compensation. This specification
assumes that compensation per unemployed worker is held constant in real
terms. The next term represents interest payments on government debt
held in private hands. The lag is included to capture (at least to a
rough approximation) the maturity structure of government debt. The
last term captures social insurance payments, again assumed constant

(per person) in real terms.


-85-

TABLE A-16: JAPANESE EXCHANGE RATE SHOCK

UNITED STATES

Real GNP (%)
Price Level (%)
Int. Rate (ST)(+/-).
Exch. Rate (FX/US$)(%).....
Current Bal. (US$,B)(+/-)..

CANADA

Real GNP (%)
Price Level (%)
Int. Rate (ST)(+/-)... .
Exch. Rate (US$/C$)(%).....
Current Bal. (US$,B)(+/-)..

GERMANY

Real GNP (%)
Price Level (%)..
Int. Rate (ST)(+/-).
Exch. Rate (US$/DM)(%). :
Current Bal. (US$,B)(+/-)..

JAPAN

Real GNP (%)
Price Level (%).
Int. Rate (ST)(+/-).
Exch. Rate (US$/Y)(%). .e
Current Bal. (US$,B)(+/-)..

UNITED KINGDOM

Real GDP (%)
Price Level (%)..
Int. Rate (ST)(+/-). oe
Exch. Rate (US$/PS)(%).....
Current Bal. (US$,B)(+/-)..

NOTE: Amounts shown are deviations from the baseline path.
(%) = percentage deviation from baseline
(+/-) = absolute deviation from baseline

-0.
-0.
-0.

72.

-0.
-0.
-0.

0.

FOWNA

HFORKO OOrHO

CONKN

CURNO

-1.
-0.
-0.

4.

-0.
-0.
-0.

1.
-0.

NOPRFRH

OrRNNO wCOnRR

MORNE

NNR wWO

-0.
-0.
-0.

“1.
-0.
-0.

“5.

-0.
-0.
-0.

1.
-0.

NOFROAaN wrENO ONnNNO CONNK

UANFO

-0.
-0.
-0.

-1.
-0.
-0.

-6.

0.
-0.
-0.

1.
-0.

uUoruo

ONNYwH COUNr

NFORR

MER FO

-0.
-0.
-0.

1.
-0.
-0.

-7.

0.
-0.
-0.

1.
-0.

FOWLO PWORMK CPN WH MOWNE

orNnuPn

-0.
-0.
-0.

-1.
ol.
-0.

-8.

0.
-0.
-0.

1.
-0.

NOWRO

ORPNNH FOWWSO

ANOREF

wwunur

“0.
G.
Qa.

-1.
Q.

-0.
-0.
70.

0.
-0.
-0.

1.
-1.

e0a000

COWWO

CONNH CeMWWO

NRHORO

oONnNUPR



-11-

as a distributed lag on past rates. The real long-term rate equation
(12) is the difference between the nominal rate and expected inflation,

which is in turn a distributed lag on past inflation (equation 18).

Supply

Equations 13-21 show the modeling of aggregate supply. The
production function has three factors: capital, labor, and imported
intermediates.3 The production function determines gross output;
real GNP is measured net of imported inputs, in equation 14.

The producer's problem is to maximize profits given the
constraints imposed by the production function, the demand for out put ,
and factor supplies. (We assume that producers can set prices in the
market for output.) The first order conditions for this problem yield
demand functions for each of the three factors, the supply curve of
output, and the production function itself. Because aggregate demand is
determined by equation (6), any one of these conditions is redundant,
and imay be omitted from the model. In the prototype model, the demand
for ‘labor function is omitted, and the quantity of labor employed is
determined by the production function. The demand for capital is
implicit in the investment equation, and the demand for imported inputs

is given by the first order condition, equation 21.4

3In the MCM itself, imported intermediate inputs are subdivided into oil
and other inputs. "Other inputs" are then approximated by total
non-fuel imports.

4In the full MCM, this equation is combined with imports of final goods
to generate a demand function for total imports.


-68-

Hooper, P., "Exchange Rate Simulation Properties of the MCM," European
Economic Review, vol. 30, 1986, pp. 121-198.

_ CS Summary Description and Analysis of Comparative Model
Simulations," Federal Reserve Board, unpublished, March, 1986.

Hooper, P., R. Haas, S. Symansky and L. Stekler, "Alternative Approaches
to General Equilibrium Modeling of Exchange Rates and Capital
Flows: The MCM Experience, in L. Klein and W. Kreller, ed.,
Capital Flows and Exchange Rate Determination,
Springer-Verlag, Wien, 1983.

Hooper, P. and J. Morton, "Fluctuations in the Dollar: A Model of
Nominal and Real Exchange Rate Determination," Journal of
International Money and Finance, vol. 1, (April 1982), pp.
39-56.

Organization for Economic Cooperation and Development, Economic Outlook,
Paris, December 1984,

Oudiz, G. and J. Sachs, "Macroeconomic Policy Coordination among the
Industrial Economies," Brookings Papers on Economic Activity,
(1984) pp. 1-76.

Stevens, G., R. Berner, P. Clark, E. Hernandez-Cata, H. Howe and S.
Kwack, The U.S. Economy in. an Interdependent World: A
Multicountry Model. Washington: Board of Governors of the
Federal Reserve System, 1984.

Tobin, J., "A General Equilibrium Approach to Monetary Theory," Journal
of Money Credit and Banking, vol. 1, (February 1969), pp.
15-29.

Tryon, R., "Small Empirical Models of Exchange Market Intervention: A
Review of the Literature," Staff Studies 134. Washington:
Board of Governors of the Federal Reserve System, 1983.


-74-

TABLE A-5: US FISCAL SHOCK

UNITED S"°ATES

Real GNP (%)... see eee eeeee 2.0 1.7 1.2 0.8 0.5 0.1 -0.2 -0.4
Price Level (%)...... 0.2 0.6 1.1 1.6 2.0 2.4 2.7 2.9
Int. Rate (ST)(+/-) . 1.7 2.0 2.0 2.2 2.4 2.6 2.8 2.9
Exch. Rate (FX/US$)(%)..... 2.2 3.1 3.0 3.1 3.2 3.4 3.6 3.9
Current: Bal. (US$,B)(+/-).. -10.2 -15.2 -21.6 -28.2 -37.3 -47.3 -59.3 -73.0
CANADA
Real GNP (%).. 0.5 0.1 -0.2 -0.4 -0.6 -0.8 -1.0 -1.2
Price Juevel (%).. . 0.2 #04 0.5 0.5 0.3 -0.1 -0.6 -1.3
Int. Rate (ST)(+/-) 1.6 1.7 1.5 1.6 1.7 1.8 1.9 1.9
Exch. Rate (US$/C$)(%)..... -0.3 -0.5 -0.2 0.3 0.9 1.7 2.5 3.4
Curren: Bal. (US$,B)(+/-).. 1.5 1.5 1.4 1.2 1.1 1.0 0.9 0.8
GERMANY
Real GNP (%) 0.2 0.4 0.7 0.7 0.5 0.4 0.3 0.3
Price Level (%).. 0.4 0.7 0.9 1.2 1.5 1.8 2.2 2.6
Int. Rate (ST)(+/-) 0.7 0.6 0.6 0.7 0.9 1.2 1.4 1.7
Exch. Rate (US$/DM)(%). » 72.2 93.4 -3.5 -3.5 -3.5 -3.6 -3.8 -4.1
Current Bal. (US$,B)(+/-).. -0.0 0.3 1.1 11 1.4 2.2 3.1 4.2
JAPAN
Real GNP (%).. 0.7 1.3 1.3 1.2 1.3 1.4 1.5 1.7
Price Level (%).. 0.1 0.3 0.5 0.6 0.9 1.2 1.5 1.9
Int. Rate: (ST)(+/-). 0.2 0.4 0.4 0.4 #O.4 O.5 0.6 0.7
Exch. Rate (US$/Y)(%). “3.1 -3.1 -3.1 -3.6 -4.0 -4.5 -5.1 -5.8
Current Bal. (US$,B)(+/- 2.0 5.0 6.3 7.2 9.2 11.1 13.4 16.4
UNITED KINGDOM
Reai GDP (%) 0.2 0.3 0.4 0.3 0.2 0.1 0.0 -0.0
Price Level (%). 0.6 1.0 1.2 1.6 2.1 2.5 3.0 3.5
Int. Rate (ST)(+/-) 0.1 0.1 0.5 0.6 0.7 0.9 1.0 1.2
Exch. Rate (US$/PS)(%). -2.6 -4.0 -3.7 -3.9 -4.4 -4.9 -5.4 -6.0
Current Bal. (US$,B)(+/-).. 1.5 2.6 4.1 44 4.7 5.4 6.2 7.3

NOTE: Amounts shown are deviations from the baseline path.
(%) = percentage deviation from baseline
(+/-) = absolute deviation from baseline


Aswur - SUC 3S73 0 N3HL O 47 AsUUr - SUC 4T = ZAaur

Adar JO BNIVA G3YIS3IO (24gur) “919

(OUrMr - TiexSur x GurMcexaur = saur

‘sur ONY our JO 39VURAV ‘O31HOT3M (sour) = *ST9

((9-ISUT) SOT * £0°O + ((S-ISUTIDOT * GOO + (T5-)SUF)90T
% 60°O + ((E-)SUFISOT * IT'O + ((2-ISUFISOT * HT“O + ((T-ISUCISOT * ZT"O + TOZE*T = (THYTI90T

31Va 1SF¥JINI 39VOLUOW JOVUGAY (IHU) “STO

Caaravdr - 1) ear + Turavdr « vier = Tur

‘S3YNIN3G30 WNVA NO GT3IA (TUF) *£T9

28/5 :G31VWIIS] 19 = BON  B O86T OL 6 S96T + 3ONVY
29°T = Md WN = SHT NV3W £60°2 = “U'a°S 26° = SUD

(s2°s) (1072)
(1-)1ur * T0097 + CITOZG * SUF) x ZTHOT" +

(6z2") (69Z°T) [osaag) (29°)
Sur x GbsTO" + (ITOLd * GLUT) x HE2ZT° - Glue x ISIST’ + 26296°T = ater

S3UNINTGIO WAVE JO NOTLONN AlddnS 13N V WOUd - S3UNINIaI0 Wa NO GTSIA (alur) “2T9

(9-)Sur x S0°0
+ (S-)SUF * 60°D + (4-)SUr x TT"O + (£-ISUT x HT"O + (2-ISUF x ZT°O + (T-ISUr * 2°70 + » = VIF

SUP 40 3OVUIAV ONIAOH V SV - S3UNINZGIG WWE NO GTAIA (VIUr) “TTS

§8/> :G3LVWILS3 If = GON $8 SZ6T OL TD 896T *3ONVY

(2°81) 266° = OHY 956°8 = SHT NV3N 95° = “US'S 626° = BSYD
(s90ss"£) (90295 "6 ) (s9T69°T)
aur x 285000" - Gur x IT8Se°T + b2Ts*2- = sur

S3AUN3S34 3344 GILYIANI - A3NOW Two NO ava AS3USLNI (Sur) *OT9

S8/> :Q31VWIIS3 = 69 = GON 2B bat ote 20 £96t_ ?3ONVa
() 62>" = OHY 268°9 = SHT NV3N ZS0° = bsad

(ZT9T072) (s69T@") (98s6s"s)
((1-)df/C1- 400907 * (xb x T699E" - 2b bLTTEZ* - TB x T2862" -
(2998°2T) (99289°9) (990%b" =) (2s682'S) (ST6ZZ°T)
e982." ) + <b x $G568°S + 2D « 94E2E°2 + TO x I9TST*'S + Lob2T°I- = (df /88NIt 1907

SVE AG GT3H ADNTWUND CBUNIF) 609

S3iVY 1SIYFINI GNV YOLI3S ONIWNVE SLVAINd “@°III'e

- 920 -


SAHOI3M ANSWLSSANI 1939NIG - X30NI_3LVY ZONVHIX3 OT-9
(SLHOT3M 30VYL) NOTLVNGI dN NOIZNOI OT-9 NI IWNGISIa
“ba NOTLVZITIIN ALIOVdvD NOIZYOS GFLHOIIM FQVUL NI AINVdSYISIO WITISTLVIS
IN3QU3d - SLHOT3M JOVUL NOTZYOS - NOILVZIILIN ALISVdVI_NOIINOS
NOLLYNO3 NOTLVZIIIIN ALIDVdvD NOT3YOS GALHOIIM INBWLSIANI 19aYI0 NI WNdIsay
N3IUad - SJHOI3M INSWIS3ANI 1939YIG - NOILVZIVIIN ALIOvdv9 NOIIYOS
00°T=2Z6T - SIHOI3M J0VYL TWASLVITLINN - Idd 39VYSAV G3LHOIIM NOI3YOS
00°T=Z26T - SAHSI3M INSWISSANI 193uI0 ~ Idd 39VY3AV G3LHOIIM NOL3YOS
C39vYaAV GOTYad) SYINSIIOI NO SWIVID JLVALUd
(QOIYad JO GN3) SYINSIIYOs NO SWIVID JLVALYd
SAHOT3M INSWIS3ANI 199YIO - NOTLVISNI NOI3YOS 40 JOVYIAY ONIAOW
C39VYRAV GOTYAd) SYINDIZXO4 NO SWIVID LN3WNY3A0S
(QOIY3d JO GN3) SYINDTIYOS NO SWIV13 IN3WNUIACS
(SMUG) NOTIGWISNOD ADYINS JLVOIBSOV
00°T=£26T - ($SN/3ONVHIX3 NOTIYO4S) 3LVY JONVHIXT G3LHOTIM FOVYL AYLNNOI— >
(00°OOT=£26T - X30NI 31VY JONVHIX3 YVTION “S°N G3LHOTIM-3GvaL Gus
00°T=£26T - ($SA/SONVHOXS NOLIYOI) 3LVY JONVHIX3 GILHOTIM JCVYL AYINNOD-b
CNOTLVID3NdIO ZSZT) SIV@VYNG YIIMNGONd YOI NOILVIIIYdIG IIWONOII
(NOTLVID34d30 ZOST) S37IGVYNG Y3IINGONd YOI NOTLVIIIYd3O IIWONOII
(SUV3A JO WAS) S3TaVUNG YIMNGONd Os NOTLVIIIYdIG IIWONOII
(NOTLVINIWD 3NIT AHOTVYLS) SITVUNG YIINGOYd YOs NOTLVIIIYdIG IIWONODA
> 62 OL T 22 WOUS T= ?F1GVINVA AWNNO
BWTYLS SN3W3YOHSONO] “IVNOLLVNYZINI OJ AWWNG
$1¥Odx3 YO4 ANHNG 3NIYLS 3900
S1YOdHI YOI AWANG IATYLS 4900
NO % 92 WOUd ZT= ONY £ 9Z - T bZ _YOd T AG TI OL T WOYS S3SV3YONT 73TGVINVA AWN
SBYNLINULS YO4 NOTLVIIIAdIG DIWONOIT 4O NOILVINITVS HLIM G3LVIDOSSv a1avVIYVA AMANO
‘SATaVUNG YOS NOTLVIIIAdIG JIWONOII JO NOTLVINIIVI HLIM G3ILVIDOSSY F1aVINVA AWHNG
HLYOM 13N 31VAIUd NI _3ONVHD
SUdS - -SL3SSV NOI3NO4 IN3WNY3AC9 NI_S39NVHD
(YSN) SLaSSY NOI3WOd J3N B31VAIYd NI 39NVHD
CVSN)_L3N - SLASSV_3AY3SIY WIDT4IO W101 NI_3JONVHD
$39IUd ZZ6T - SHANITIYOs OL SILLIIIGVIT IN3WLS3ANI 193410 13d
SUBNDTSYOI OL SIILTIIGVIT INSWIS3ANI 193410 40 YI01S
WNFIOYL3d - SYINITZYO4 NO SWIVID INIWIS3ANI 193YI0 40 Y901S
Y3HLO - SY3N9I3YO4 NO SWIVID IN3WIS3ANI 193YI0 4O 01S
ONTUNLOWANNVH - SY3NDTFXOS NO SWIVID IN3WLS3ANT 193410 JO AOS
$39IUd ZZ6T — WN3TOUL3d — SY3INDIZXO4 NO SWIVID INSWIS3ANI 193¥I0 1V3U
$39Tud ZZ61T - YaHLO - SY3NDT3XO4 NO SWIV79 INSWLS3ANI 193410 Wad °S'n
S39IYd ZZ6T — ONTYNLOVANNYH - SY3NOT3NO4 NO SWIVID INSWLS3ANI 193¥I0 TW3y "S°0
NOILVNDA SYBNOTINOS OL SATLIVIGVI1 J1VAIYd NI_3ONVHD NI IwnoIsay
SYBNDIINO OL SITATIIGVIT 3LvAIYd NI 3ONVHD
SYINDT3YOS OL S3ILITIVGVIT INSWNYSACD NI’ 39NVHD
NOLLYND3 SYINSTIYOd NO SWIVID J1VAIYd NI 3ONVHD NI WwNGIs3y
‘SU3NDIZYO4 NO SHIV19 3LVAIYd NI 3ONVHD
Q709 - SL3SSV .IN3WNU3A09 NI 39NVHD
$.4GS ONIGNTDXA SLISSV IN3WNY3A0S NI _3ONVHD
ANSWIS3ANI “WWIIN3GIS3Y - 31VY AVI30 IIWONOI3
SBUNLINYLS S.YIINGOYd - 31LVY AVIRA IIWONOIZ
Sata@vund - 31va AVI30 DIWONOD3
(VSN) SAINNOI9V_4O_IN3WAVd 40 39NVIVE NI SNOISSINO ONY SYOUYa
. FWAGISAY WYNLINYLS MOTANI WildV9 IN3WLSAANI 1934IG
(VSN) SY3NOT3YO4S OL S3TLTIIGVIT INaWLS3ANI 133410 NI 3ONVHD
(VSN) WNFIOULId - SYBNDTIYOs NO SWIVID IN3WLS3ANI 193¥IG NI 3ONVHD
SLNNODIV ANVdWODNSINI - SATITINY SONVTU3HLIN O1 SMO1SINO W1IdVD INSWIS3ANI 1934I0
ALINDI - SATITINY SONVTYSHL3N O1 SMO141NO WWildvVD INBWLS3ANT 1934¥10
(VSN) Y3HLO - SY3NDT3YOI NO SWIV1D IN3WLS3ANI 193uIG NI 39NVHD
(VSN) SNTUALIVANNYN - SY3NDTIYO4 NO SWIVID INSWLS3ANI 193410 NI 3ONVHD
(VSN) ‘W1OL - SY3NOI3YO4 NO SWIV1D INAWLS3ANI 1O3YIG NI_3ONVHD
SINIWAYINGIY 3AURSIY OL 1LIIANS S1ISOd30 GNVWIG LNAWNY3AOS SN
SIN30IS3N_ AG 13H SLISOd30 GNVW30
$39IUd IN3YUND - FYNLIGNAdX3 NOLLGHNSNOD 3LVAIYd
BONVIVa INNODIV INFWND “S°N
SIN3GISIY AG O13 AINIYIND
NOTLYNDI NOILVZITILN ALIDVdVI ONTYNLIVANNYW NI IWNGIS3Y
4N3943d = 31VY NOILVZI1LIN ALTIVdVD SNTYNLOVINNYH
00°T=2Z6T - NOILYND3 30VYL VOVNVD-SN NI S39TYd ONILIdWOD AYINNOD- GUIHL
$391Ud IN3YIND - ZINVMOTIV NOLIdWMSNOD WW1Idv)
WN310NLId - SWIVID IN3WIS3ANI 193Y10 NI S3SSO1 ONY SNIVS W1Idv>
Y3HLO - SWIVID IN3WIS3ANI 193¥IG NI S3SSO1 ONY SNIVS IW1IdVd
ONTUNLIVANNVH - SWIV1D IN3WIS3ANI 193YId NI S3SSO7 ONY SNIVD W1IdVd
SAILIVIGVIT INSWIS3ANI 193410 NI S3SSO1 ONY SNIVS WiIdvd
$391Ud ZZ6T ~ 3YNLION3dX3 NOILdNNSNOD JLVATUd

3SV@ AYVL3NOW G3MOu

{YOGNON

(Mid 3d AV Y3d STING) YOLIVA NOTSYIANOD

OLLVY - SYNYG Y3GN3H SLISOd30 GNWW3G 13N ISNIVOV INSW3YINDIY FANISIY ALIT GWT
ANNOIIV Wildvd YOs YOLIV4 TwNOSVaS

SNOILVINIIVI NOILVII3YdAG WIIN3OIS3Y NI JONVIVd SNINITII0 40 3dAL
SNOILVINIIVI NOTLVII9UdIG SIYNLINGIS NI_JINVIVE ONINIID30 40 3dAL

OLLVY - SYNYE Y3IGN3N LV S1ISOd30 GNYW30 ISNIVOY INSWaXINOSY FAYISIY IIIT IW
X3QNI_39VSN_ INNODDY MON

WN3I0UL3d GNV TIO JGNYD 40 39TYd LYOdXa NvIavay Tanvs

‘VIO 30ND LHI] NVI@va IonvS YOs 39TYd WOVE 13N

(CO°T OL 1¥NO3 13S) NOILYND3 SXdMOU NI YaL3NVaYd

ALIIN3OI X30NI_39IYd 1YOdxX3 MOY NI WWNGIS3IY

00°T=2Z6T ~ X30NI 33IUd 1YOdX3 “M°O°U

(O°T OL TWNB3 13S) NOILVNO3 dIMOY. NI YaLIWVUVd

NOILINII30

- £412 -

| NOILvnd2

otra3in
43034n
wa0TNIIN
OTM4NIIN
4¥3aMaNI4N
MIGNIIN
MLaId94N
Ma4Id34n
SAVIN
dan
1d7dHI4N

‘SdAVO30N
QdAvo30N
jan

SXdMOU
Wad IMOU

| SINOW3NW


-T-

Variable definitions

BU unborrowed monetary base (exogenous )

Cc real consumption expenditure

CAB current account balance

DNFAG change in net foreign assets of the (exogenous )
government.

DNFAP change in net foreign assets of the

private sector

E nominal exchange rate (local currency per
unit of foreign exchange)

E° expected change in nominal exchange rate

E expected long-run nominal exchange rate

G real government expenditure (exogenous )
I real investment expenditure

ig nominal discount rate (exogenous )
is nominal short-term interest rate

ig nominal long-term interest rate

*

i, foreign nominal short-term interest rate (exogenous)
K stock of physical capital

L labor employed

L labor force (exogenous )
M money supply

Mgs real imports of goods and services


S30Tad INFYBND - NOILVNBI S33SIA3S ONY SGOOS JO SLYOdWI NI TWNdIsay
SISVG dOS - SLUGdMI S009 SN W1OL

$30IUd AN3VUND - SISVE VIN - S3IIAUIS GNY SGOOS 40 SLvOdWI

$30IUd 2261 - SISVG VIN - S3DIAM3S GNY S00S 40 S1¥OdNI

$49IYd 2261 - SAILAUIS ONY SGOOD 40 SLYOGNI NI TwNdIS3y

SLUOdNI 3STONVHIUSN dOS OL INSMLSNFGY 0109

$39IUd INJNUNI - SISVA VIN - SLYOdWE ISIONVHIYAH

$39IUd 2261 - NOILYND3 HOGI ISIONVHIUSW NI TWNOISIY

‘'S30IMd 2261 - SISV@ VIN - SLYOdWI 3SIONVHIUSH

Sa0IUd LNIWND - SLYOdWI TIO-NON SN

$39IUd 226T - SG009 40 S1¥OdHI TIO-NON SN

$39Iud ININWND ~ SLYOdHI 110

$39IWd 2261 - NOILVNDA SLNOdWI 110 NI WWNGIS3¥

$39Tad 2261 - SLYOdWI 110

SA9IUd 2261 - SLYOdWI SGOOD SN ILL

SANSWAYINDIY JAYISIA OL 199aNIS SLTSOdaG GNVHIG

SNOSU3d 40 SNOITTIN - SYaRIOM G3A01dWINN

WWIINSGISIY - 13SSV 40 341)

STINLIMWS YsINGOYd - 13SSV 4O 3417

‘Sa 7avuNd YIINGONd - L3SSy 40 3411

(0193S SSINISNG WYV4-NON) | 33AO01dWa Yad SYNOH

SNOSU3d JO SNOITTIN ~ 39404 Yoav)

SNOSU3d 4O SNOLTIIN - NVITIAIS W1OL - INSWAO TW]

BOVUSAY ONIAOW - NOLLVIANI IILS3W00

S30IUd ZZ6T - SIYMLINYLS S.YIIMNAOYd. JO NOLS 13N FLVATYd

$39TYd 226T - NIOLS WATdVD IWIINSOISIY 13N S1VATYd

S$39TYd 2Z6T - INSWdIND3 JTVUNG 40 YOOLS 13N_ALVAIYd

$39TUd ZZ6T - WOOLS WiIdVI FLVAIYd LAN O3xI4

ANSHLSSANI AYOLN3ANI 40 3201S

TSUN ONY SUN _N33ML3@ AINVd3YISIO

SINN032V dO@ ONY dNO NI SINSWAVd YadSNVUL (13N) INSWNYZAOD N3IMLI8 YOLIV4s J90TUS
00°T=ZZ61 - SNOILYNOI JGvVYL NYd¥e-SN NI S39IYd ONTL3dWOD AYINNOD-GYTHL
SINAWSYINDSY FAUISIY OL 1939S SLISOdIG GNVWIG OL SLISOd3G GNVW3G IW1Ol 40 OLLVY
‘SLISOd30 GNVW3d YO4 YOLIVS AN3WISNTGY IWNOSVaS

'SUINDIFYOS OL SINSWAVd 1S3X3INI LN3WNY3A0S

S39TYd INSWIND - SATYOLNSANI 3LVAIYd TVLO1 NI 39NVHD

$39TUd LN3YYND - SITYOLN3ANI WYVS NI JONVHD

S391Nd 2261 - S3TYOLNAANI WYVS NI 3ONVHD

S3IYOANSANI SS3NISNG WYVI-NON ONY Wuvd TWad NI_JONVHS

$39TUd IN3MYND - IN3HLS3ANI GaXxI4 31VALUd

S30INd ZZ6T - SAYNLINULS S.YIINGOYd NI_INIWLSIANT SSO¥S BLVAINd
$30IUd 2261 - INSWIS3ANI IWIINSGISIY SSOUS S1VATUd

$30IUd 2261 - INSHLSIANI IN3HdINDI F1@vNd SSOYS Z1LVATYd

$301Ud ZZ6T - INSWLS3ANI GaXxI4 JLVALYd

S39T%d 2Z6T -1V901 ONY 3LVLS TvY3GIs - S3SVHIYNd INAWNYIACS
S3OIAUIS ONY SGOCS 40 JINVIVE

ANAWLSBANI WIINJOISIY YOS (S3ALINIONI XVL)SINVYS

FTVUNG YIINGOYd BOs (SIALINIINI XVLISINVYD

00°T=2Z6T - NOLLYND3 FGVYL NVWUR9-SN NI S3ITUd ONTL3dWOD AYINNOI-GUIHL
$391Ud IN3YNI - NOILYND3S dNO NI IwndIsay

‘$391Ud IN3YINI - LINGOYd IWNOTLLYN SSOUS

dNO WILN3LOd "S'N

S$39IUd ZZ6T- NOILVNBI dNO NI wndisad

$39IUd 2261 — LOAGOYd IWNOILYN SSOUS

‘'SIN3WAVd LS3YSINI INSWNU3A0S

SASTUdYIINA INSWNYIAOD 40 SNIdUNS SS31 SAIGISENS IN3WNYIACS
SY3NOTSYOS OL SYIISNVYL LN3WNYIAOS

$39Tad ANJNYND - 1W907 GNY 3LVIS Twuadas -- LTITI3G ANSWNYIADS
1@30 LN3WNYIA0S

BONVIVE JOVEL

S30TYd 2/6T - W907 ONY ALVIS TwY3GR4 - SAIIAYAS GNV SGOOS 4O S3SVHOUNd INAWNY3A0S
SIHOTSM 3OVUL WASLVITLINN - S31Va 1SIYIINI WYaL-LYOHS NOTIYOS
00°00T=026T - SLHOI3M INSHISSANI 19auIG - X30NI 39TYd Y3WSNOD NSIIYO4
(SIHOTaM INJMISIANI 193410) NOTLYNB3 X3GNI 3OTYd YIWNSNOD NOTIYOS NI TWNGISIY
(SIHOTSM 30VaL) NOTLVNOI XZ0NI 39TYd Y3WISNOD NOTIYOI NI IWNGISaY
(00 OOT=026 - SAHOISM 3QVYL - X3ONI 3ITYd Y3WNSNOD NOTI¥O4

($SN) 00°00T=Z226T - X3QNI 391Yd YaWNSNOD NOLIYOs

(30ND YOs GIANNOIDYNA) ADNVdIYISIO WITASTLVIS WOITIONLId ITLSIWOO
BLVY 1114 3AUaSIY WNATOULId IISILVYLS

(40NID YOs GALNNOIDWNN $S31) NOTLINGOYd WIIIOYLId ITLSIWOG

CYSN) SNTOTINGYIOLS 110 JLVAIUd

(@9vaaAv GOTYad) SYBNDTSHOS OL S3TLTII@VIT J1VATUd

(aord3d JO GN3) SYSNOTZNOS OL SITLTIIGVIT JLVATYd

(49VERAV GOTYRd) SYBNITIYOI O1 SAILITIGVIT IN3WNY3A0S

(QOTU3d 40 ON3) SYINOIZYOS OL SILLIIIGVIT INaWNY3ACD

SISV@ VIN O1 A9Y3N3 JO INAWLYVd3O ?YOLIVS NOISYIANOD LYOdWIT

(YSN) S1ONGOYd GNY 110 3GNYD 4O NOLLdWISNOD IILS3WOO

SIHOTIM 3QVUL WABLVITG - ALIATLOV IIWONOD] NOIIYOs T1YOM

SIHOI3M dN - dNO NOIZYOs OT-9

SAHOT3M 30VUL - dNO NOTZYOS OT-9

SLH9I3M 1NOdX] - dN 3OVYRAV G3LHOTIM NOTIYOS

'SIHOI3M JOVUL - dN ZOVUIAV G3LHOLIM NOLIYOS

‘SLHOI3M dNS - dN 39VYRAV G3LHOTIM NOT3YOI

NOLLVNDA ALIATIOV DIWONOIT NOIFYOS QTYOM NI WNGISay

NOLLVNOA dNO NOIFNOS G3LHOTIM dNO OT-9 NI IwndIsay

NOILVNDS dNO NOTFYOS G3LHSTIM FOvYL OT-9 NI IwnaIsay

SIHOT3M JNSWISIANI 193Y¥T0 - XJONT 3LVa SONVHIX]

NOILINIS30

- eI2 -

Ted SSH
OL AINSOWN
S62 INSOWN
(90X3) a
(90X32) qi0sHn
AINSWN
(90x34) 4a INOW
Sol It
BEL AT4NONN
92 ANOWN
ObL A1490N0
(90x43) 4aT49NN
Toh 1390N
5374
s18
Loe nin
(90X3) 43411N
(90x3) sd331In
(90x3) ad3411N
28 Han
948 ain
soe 31n
sze Td2dH31N
S58 san
258 adn
58 aan
se an
958 Inn
(90X3) sanrn
(90x4) ONVELEN
206 aWoodrn
(90X3) n
(90x43)
9th ASLNIN
602 ALIN
(90X3) ASTIN
TZ
(90x4) Tin
802 Ad4In
Zod Sd4IN
002 ud4In
TOL ad4In
S02 dain
oz aan
262 wasn
(90x3) wLINVESN
(90x4) Qdinvusn
906 dWO9d9N
(:90x3) ‘¥Y3AdNSN
90Z AdNON
OddNon
(90x3) wadNON
OL dNON,
304 AISN
(90X4) on
612 Ads9n
22d 4309n
E2L 4a3c9n
88Z ween
(90x43) on
16 MLdsuan
006 otradsan
(90X3) u3qd3n
(90x43) 4ad9d3N
206 OTM49d4N
£06 sngodin
(90x3) SNDINTAN
(90x3) uds14n
(90x43) ‘SNNTBTIN
62L SNOSdT4N
288 ‘sgAvd14N
88 dan
oso SAvdTIN
913n
(90x3) ANOIG14N
e822 ‘SNOTAN
968 WMXdNOIN
268 OTSdN94N
68 OT4dN9IN
68 MX4dNO4N
568 ML4dN9IN

16 Mrgauaan

| NOLLYNDa | DINOWINH


VSNAMND % MNAJVS2 = AMND

(WS) S39TUd IN3WYND - HLYOM 13N (AMND)

VSNUMND % MNJVSD = UMND

(WS) S391dd 226T - H1YOM 13N (YMND)

d2/VSNAMND = VSNUMND

(VSN) S30TWd IN3WUND - HIYOM LIN CVSNAMND)

(d9_% )/SNAYMNGD + °(T-)VSNMND = VSNYMND

(VSN) S39Iud 226t - HOM re JTGIONVL (VSNYMND)

‘9/SNAIMNGD + (T-)VSNAIMND = VSNAJMND

(VSN) S391ud ‘INawuND - HiuoM 43N WIDNYNIS CYSNASMND)

AVI99 - AIID + VSNASSID + VSNAd4ID = SNAYMNGD

(WSN) S39T¥d INSWUND - HIOM 13N JTGIONV NI ZONVHD (SNAMNGD)

VSNAID - CAIID +
VSNASSID + WSNAdSID) - VSNS3YD - ANVULND - ANVULD + ANVULXD + ATID - ALD - VSNAGNSD = SNAJMNGD

(VSN) S39Tud INIXIND - HOM 13N WIONWNIS NI 39NVHD (SNAIMNGD)

“of

“££

2s

“ts

‘Os

“£42

Hi1V3M GNY SONIAVS Z1VAIdd *3°I°D

- ot-


-72-

TABLE A-3: GERMAN FISCAL SHOCK

UNITED STATES

Real GNP (%)...--eseeee eee 0.1 O11 0.1 0.0 0.0 -0.0 -0.0 -0.0
Price Level (%).... 0.0 0.0 0.2 O12 0.2 0.2 0.2 0.2
Int. Rate (ST)(+/-) 0.1 #O.1 0.1 O11 0.2 0.2 0.2 0.2
Exch. Rate (FX/US$)(%)...-- -0.0 0.2 0.2 0.2 O12 0.1 O11 0.1
Current Bal. (US$,B)(+/-).. 1.4 14 #413 1.1 09 #07 0.4 0.0
CANADA
Real GNP (%) 0.0 0.0 -0.0 -0.0 -0.1 -0.1 -0.1 -0.1
Price Level (%)..- 0.0 #O. 0.1 O12 O11 0.1 0.1 0.1
Int. Rate (ST)(+/-).. 0.1 #0. 0.1 0.1 O11 O11 0.2 0.2
Exch. Rate (US$/C$)(%) 0.0 -0.0 -0.1 -0.1 -0.1 -0.0 -0.0 0.0
Current Bal. (US$,B)(+/-).. 0.1 0.1 0.1 0.1 0.0 0-0 -0.0 -0.0
GERMANY
Real GNP (%) 1.3 1.3 1.2 1.0 07 05 03 O71
Price Level (%)..... 0.1 #0.3 0.6 0.9 1.3 1.7 2.2 2.7
Int. Rate (ST)(+/-).....--- 0.1 0.1 0.4 0.7 0.9 1.2 1.5 1.8
Exch. Rate (US$/DM)(%)....- 0.0 -0.4 -0.3 -0.2 -0.0 0.1 0.3 0.4
Current Bal. (US$,B)(+/-).. °-3.4 -3.8 -3.9 -3.9 -3.7 -3.3  -2.8 72.1
JAPAN
Real GNP (%)..-.sseeeee eee 0.1 0.1 0.1 0.1 0.1 0.12 0.1 0,2
Price Level (%)..... 0.0 0.0 0.0 O11 0.1 OF1 0.1 0.2
Int. Rate (ST)(+/-). 0.0 0.0 0.0 0.0 0.0 O.1 0.1 0.1
Exch. Rate (US$/Y)(%). . °0.1 -0.1 -0.2 -0.2 -0.2 -0.3 -0.3 -0.4
Current Bal. (US$,B)(+/-).. 0.3 40.5 0.6 0.8 1.0 1.3 1.8 2.5
UNITED KINGDOM
Real GDP (%) 0.0 0.0 0.1 0.1 0.1 0.1 0,1 0.2
Price Level (%) 0.0 0.0 O.1 0.1 0.2 0.3 0.5 0.6
Int. Rate (ST)(+/-).. 0.0 0.0 0.0 0.1 O12 Of1 0.2 0.2
Exch. Rate (US$/PS)(%). . 0.0 0.0 -0.1 -0.1 -0.3 -0.4 -0.5 -0.6
Current Bal. (US$,B)(+/-).. 0.3403 04 04 0.4 O05 0.6 0.8

NOTE: Amounts shown are deviations from the baseline path.
(%) = percentage deviation from baseline
(+/-) = absolute deviation from baseline


AINXAVSI * SINSSXS = INSSXD
S$32I%d 2261 - SISV@ VIN - Si¥OdX3 (INSSXS) “bTb

S8/> 2031VWIISI 1S = GON 8 Z86T Ol TB OL6T *39NVY

(£°6T) £16" = OHY 956°S = SHT NV3W 600° = “Y°3"S 866° esud
(99999°T) (1Z62g5")
<b 49900" + 28 <TTTOO" -
(46052T") (o1z9"s2) (885956 ")
TD * 265000" + (d9/(ASOSXD + AdOSXD + AASXD) + 9X9)INO1 * SG4656" + ISETZ* = (SINSSX9)907

) (YSN) S39TUd 2261 - SISwa VIN - S1YOdX3 (SINSSXS) “ST

AINXAVSS % SAINSSXD = AINSSXD

S39IUd INIWWND - SISV@ VIN - SLYOdXI (AINSOX'

"aly

aa yAT Sa Té = GON . +8 296T O87. 0961 ?39NVa

S8/>
(2°9) 985° 91'S = SHT NV3H 200° a°s T= 85x

(29%20°T) (92692°2)
sb % £62100" + 2b % 292400" -
(99980°2) (828°S2) (ss2"5)
TO * %£S£00" - (ASOSXS + AdOSXD + AASXD + ASX9I9N1 * SHHOO"T + 2569b0°- = (SAINSSX9)901

CALLINSGI-IS¥NO) (VSN) S39THd INTWND - SISVE VIN - S1YOdX3 (SAINSOXD) “TTS

SISV@ dOG - S39IAY3S ONY SGOO9 4O S1YOdX3 (ASOXD) “OTe

AASXS + AOSXD = ASKS

‘WLOL - S33IAU3S 40 S1LYOdX3 (ASXD) 60%

ASOSXS + AdOSXS = AOSKS

W4OL - S3ITAUTS YIHLO 4O SLYOdX3 (AOSXD) “80d

-1e-


UYNd4dID + Yd4dID = ddID

‘$39Tdd 2261 - 'INSHLS3ANI Oax14 BLVAIUd (ddID) “OT

AI4VSI/A39 = VSNAID

(VSN) S39T8d IN38UND - 3UNLTON3dXa | ‘W3NNSNOD | BLVATUd (WSNAIO) “6

d2 * 39 = AID

S39TUd INFWUND - JUALIGNZAX3 UIMNSNOD BLVATYd (AID) “@

AdN9AVSI/AdNSD = VSNAdNSD

(VSN) S39Tdd “INSWND - Lonaoud WNOTLYN SSOUD CWSNAANSS) “2

AS3YD + AINSOWD - AINSSXD + ASD + AIID + ASIII + AddID + AID = AdNOD

S49TUd INFWUND - 19NGOYd TWNOLLVN SSOWS (AdN9D)

S349 + INSSWD - INSSXD + 99 + IID + 9419 + ddI + 99 = dNOD

$391dd 226T - ‘Lonaoua TWNOLLWN ssouo (ana3)

F929 U3 £8 = GON +d 2e6t OS 20 726t + 39NVa

80S 9°9T = SHT NV3H 956° = BSUD
(1696°T) (902°£5)
(YSNAIS - ALD - VSNAGNSD) * ZET9TO" + (T-)d3 * 6800°TZ2 +
(20029E") (29892°T) (8E292°T) (28T£Z0") (99ZT"9T)
(T-)d * 6Z6TOO" + 8 % 6T69ZT° + £8 % 265652" - 25% 4SS200" + %96f2°6- = AVIID

$39IUd INFWYND - JINVMOTIV NOILdWNSNOD W1LIdvI (AVIII) “>

6S0°9s~ 1s<°0
Ww. 1c ae4 9%0°0
Ne: g fx2°9T- = LLG*S $20°0
886°2 620'02- = £H2"=s 280°0
2eT°2 SI>'II- o8b's 280°0
650°T 029°6 2Z2°T 090°0

dvis-1 233099V1 dvis-1 143099V7

S8/> :Q31VWIIS3 49 = GON TB SOOT OL <b 226 ?J9NVa
ToL*T = MG 925°9 = SHIT NV3H S66° = “YRS = bsu2
(g0092°2)
(NI9)130 * £59260" +
(s9899°T)
COCT-1)3N9ND)130) *% 243099V7 + = (CC T-I)dN9D)730) * TI30I9V1T + = =6WIL ® E9STIO” +
(8S6T"9T) (Z6Z5T*2)
(CZ )NdND * 90°O - (T-)UNdSID) * ZZ9SS6° + (T-)YNdND * 90°O + G6TTOL = YNdsJID

s30Tud 2261 - .IN3WLSIANI TWILN3JOIS3Y-NON SSOUS BLVAIUd (YNddID) “=


-83-

TABLE A-14: UK EXCHANGE RATE SHOCK

UNITED STATES

Real GNP (%).
Price Level (%).
Int. Rate (ST)(+/-)
Exch. Rate (FX/US$)(%) .
Current Bal. (US$,B)(+/-).-

CANADA

Real GNP (%)
Price Level (%)....
Int. Rate (ST)(+/-)
Exch. Rate (US$/C$)(%)
Current Bal. (US$,B)(+/-)..

GERMANY

Real GNP (%)....

Price Level (%)....
Int. Rate (ST)(+/-)
Exch. Rate (US$/DM)(%).....
Current Bal. (US$,B)(+/-)..

JAPAN

Real GNP (%)......eeeeeeeee
Price Level (%).
Int. Rate (ST)(+/-).......-
Exch, Rate (US$/Y)(%)......
Current Bal. (US$,B)(+/-)..

UNITED KINGDOM

Real GDP (%)
Price Level (%).
Int. Rate (ST)(+/-)..
Exch. Rate (US$/PS)(%)
Current Bal. (US$,B)(+/-)..

1 2
0.0 0.1
0.1 0.1
0.1 0.2
71.6 -1.5
0.8 2.1
-0.0 -0.0
0.1 O11
0.1 «0.2
-0.1 -0.1
0.0 0.0
0.1 0.0
-0.1 -0.1
-0.1 -0.0
0.9 «0.9
0.5 0.3
70.2 -0.2
-0.0 -0.0
-0.0 -0.1
11 0.7
-0.4 -0.9
-0.4 -0.4
“1.30 -1.5
-0.5 -0.4
5.0 5.0
-0.1 -1.0

-0.
-0.
-0.

-0.

-0.
-1.
70.

5.
-2.

DOORS

WANE

FPRPNNO

FOREN

CONOU

-0.
-0.
-0.

-0.

-0.
72.
-0.

5.
72.

NOTE: Amounts shown are deviations from
(%) = percentage deviation from baseline
absolute deviation from baseline

(+/+) =

eOORF

5 6 7
1 0.1 0.0 0.
2.0.2 03 0
3 0.3 0.3 0.
6 -1.6 -1.6 -1.
Oo 2.1 1.9 1,
1 -0.1 -0.1 -0
2 0.2 0.1 O
2 0.2 0.2 O
1 -0.1 00 O
0 0.0 0.0 O

-0.0 -0.0

-0.1 -0.1 -0.

-0.0 -0.0 -0O

0.9 «0.9

0.9 11
2 -0.2 -0.2 -0.
1 -0.1 -0.2 -0.
1 -0.1 -0.1 -0.
0 0.9 #09
9 -1.2 -1.1 <1.
3 -0.1 O.1 O.
1 -2.4 -2.7) -3.
9 -0.9 -1.0 -1.
0 5.0 5.0 5.
3. -2.6 -3.0 -3.

the baseline path.

wWwoore

NAWWO

PNNBPR

NORNN

Uorow

-0.
-0.
-0.

-1.

-3.
<1.

-4,

ruUNnoOF

PARWO

FOHRNN DROPS

HORS


6bb°0 tWNS:

295°T s%0'0 (£-)
292'°T 060°0 (2-)
292°T sxt°O (T-)
292'T ost‘o (o-)

AVis-1 143099V1 v1

S8/> ‘Q31VWIIS3 Sf = BON £b Z296T OL we Sc6T_ ?39NVa
(T"%) 6£5° = OHY %2B°S- = SHI NV3BH 450° = “Y'a'S sud

(s9865°T) (2gt00°T) (6oTesz") (og2s"6)
sb x Z8SEf0" - 2b x £2ezz0" + bx Lo0STO’ + TEZZ0 x £60865 +
(S££6E°2)
JWIL * 999620" + CCCCLI199 * CIIANSXd3)/C1)139 * CI)dId9)901) * T43039V7 +
. (2ge9"<2)
CVSNEN39)901 + T8695°S- = (133 % ANSXdI)/A3QHI907
CS'n 6) “'n 3HL WOU SLYOdMT $0009 | NWWu39 (A3SH)
os'0 = ‘Wns
seg'z  o80"0 (e)
seg'2 9 T9T"0 (2)
ses'2 -Tez"0 (E)
ses°2 0 2ze"0 (o-)
ivis-1 143099V1 . SV7
S@/> :031VWIIS3 08 = 9 206% O1 9 29¢T gummy
(2) sae ons aEe= 2 SHI WAN 6ST 2 a-Ss suo
(9t0t'T) (266256
£B % 655250" - 20 * 069250" -
(96628°2)
TR % ZESZET" - — (CCCT)T3O * CIVANOXAO)/(1IUB9 % (1)dTd9)901) * T43099V1 +
(s956¢°9) | (2TI2T"s)
(YSNAN59 1901 * 9859E°T + $b256°8- = (C39 * ANIXdI)/AIONIEOT

(°S°N $) VOVNYD WOUs SLYOdKI ‘$0009 NYHU3S (A95H)

82°0- tHnS
995°0 £10°0- (s-)
916 "2 740° 0- (2-)
Sti'b 's20° (t-)
Tee"2 20T*o- (e-)

divis-1 143039v7 ovT

S6/>  FOSLVWIIST  6£ = ca) Zeer OL TD £261 =39NVY
(e@°s) 285° = OHY 696°S- = SHI van 6s0° = ‘y°3°S 408° = O8SYD

(692296°) (£9806"T) (£Z800T")
<b x 290610" - 2b T9LE60° - TB 960200" -

(2900* 5)
CCCCT)83S % (1)d9)/CI)110d0)901) * T43099V7 +  (dN99)901 + Se68T°S- = (1099)507

(8H) 3HNIOA - NOILdWNSNOD TIO (1099)

724

"tLe

724

$0009 40 SLYOGWI ‘y°II‘"S

ANNOIIV INIWUNI “IIS

-6L-


C9TBHZ°2)
<b x L2T622°

ANSHd9/ASHSD = SHO

S30TUd 2261 - SLYOdNI SOOO NVHYID Tv101 (99)

CPQVASHS - (839/A09H - ATOSHS) + Y39/ALOW)I901 = (AIWDI9OT

sIsva . doa - ‘SIMONI ‘$0005 NVWY39 W401 (ASKS)

ANOH + ATSH + AZOW + ATSH + ADS + ACSW + ADH + AION = ALON

('s'n $) sIsva Loa - ‘S1¥OdNI SGOOD NVHUIS W101 (ALM)

¥0s"0 tHNS:
Tzs'"s %t2°0 (T-)
05° ST ozs°0 (o-)

dvis-1 143099V7 SVT

S8/> :Q31VWIIST 06 = GON + seer gt 2 o26t_ eet]

(9°%) 2o° = OHY SZT*S = SHI NVBH 95° =

(9£Z£20°2)
2B * 2T2202°

(2££622°T) (858z0°T)
TR * 24221T" - (CIJANSH) * T43099V1 + <8E9ST° = ADNX

(CALLINIGI-ISVNB) (°S'N $) “S°N WOU4 SLYOdWI SGOOS NYWU39 ( ANSW)

-2e-

“ses

“29s


-55-

In implementing this simulation, the exchange rate shock was assumed to
be generated by a series of exogenous changes in the value of the
expected long run exchange rate such that the home currency appreciates
by a constant five percent over the baseline. The exchange rate change
was not assumed to be induced or accompanied by any other changes in
policy.

The last set of simulations analyzes the effects of a supply
side shock. We consider an exogenous increase in costs (decrease in
productivity) such that the price level (absorption deflator) rises
initially by one percent. The shock is implemented by increasing the
residual in the price equation. Because prices remain endogenous in the
model, the actual change in prices, both in the first period and over
time, depends on the response of wages, exchange rates, and other

factors.

Fiscal Policy Results

We present some summary multipliers in Table 7. This table
shows the effects on real GNP and prices of standardized fiscal shocks,
for the United States, Japan, and Germany, and for all five MCM
countries. The results summarize the degree of crowding out and the
extent of foreign linkages in the MCM. The amounts shown in the table
are percentage deviations from the baseline path. Because the fiscal
expansion is scaled to be one percent of baseline GNP, the entries can

also be interpreted as multipliers.


-51-

The Rest-of-World Sector

The Rest-of-World (ROW) sector contains five bilateral import
equations, and equations for industrial production and export prices
(equations 916-926 in Appendix 2). The econometric specification o% the
import equations is similar to that for the other country trade
equations. The industrial production index for ROW is linked to output
in the MCM countries, and ROW prices are linked to MCM country prices.

There is also a small sector which models OPEC exports and imports.


ix

-18a-

\

Is'

Is

y?

Figure 2
Monetary Contraction


war/(ataitar - aoaitar) = eyaLqr

warvata.iar = TaLq0r

SUINSTIUOI OL SATLTTIGVIT INSWISSANI 19gaT0 NE JONVHO C10LI0r)

warvazaitar = JaL10r

SUANOTIUOd NO SHIVID INSWIS3ANI 19guT0 NI JONVHO (20L10r)

680°0 Wns
Ez" yse"s 100'0 (ot-)
8£2°T yse's £00°0 (6-)
8£2°T oSe"s 400°0 (s-)
8E2'T ose"s §00°0 (-)
gse'T $58°s 200°0 (9-)
es2'T 58's 800°0 (s-)
8s2°T 9S9"S 600°0 (-)
ese'T 959°S T10"0 (-)
gs2'T 9S8"S 210°0 @-)
gs2°T $S8°s £10°0 (tp
es2°T oSe°s ST0"O (o-)

dvis-1 243039v17 4vis-1 143099V1 ova

s8/> soaevnTisa 59 = GON Dd Z296T ote am get. ?39NVa
(176) 992° = OHY $242°T = SHIT NVIW TO9" = “was bsul
COCTISXdMO % CI)dIMONITIG) % 243099V7 +

(69TSZ*2) (£02880°)
CCD)M4dNO40P) % T430I0V1 + «= TEE20 * BOZOE*T + 6005S0°- = azaLtar

C'S‘ $) SU3NOT3UOd NO SWIVI9 INSNISAANT 193UZ0 NI 3ONVHO (aD0LI0r)

“£99

“299

“1s9

“059

S3ILITIGVIT GNV SWIV1D INBWIS3ANI 19394I0 ‘VAT

AD RIVA IWIDNVNI4 TWNOILYNUSINI “A'S

- OST -


yy

*100) - PEXP = ay + a, UN,

where PEXP is the expected inflation variable defined above. Table 5
shows the a; coefficients for each model, which range from ~.47 to
-1.02; the Japanese real wage is by far the most sensitive to changes in
unemployment. The econometric estimates of the wage equation are very
poor -- only for the United States and Canada is the coefficient on
wages statistically significant. This specification was used for the
other countries because both the structure and the estimated
coefficients seemed plausible, if not statistically meaningful. The
results might best be interpreted as a particular assumption about real
wage behavior, similar to the price expectations equation.

As described in the theoretical section above, the demand for
labor hours is derived by estimating the production function. The
specification of the production function takes the Cobb-Douglas form

log(GNP + MGSNI) - log(CU*K) = ag + a4 (log(LH) - log(cu*K))

+ ap (log(MGSNI - COL) - log(cU*K) )
+ a3 (1og(COL) - log(cu*K)) + ay t
where:
(GNP + MGSNI) = gross domestic output

cu

capacity utilization
K = real capital stock

LH = labor hours


(rxxze°O = TT OL
O = FD WAS/U(% ~ WIdNOdNZE( - WIdNOdN - ( WVdNOdN) * C-)%xZB°O =O STI- = WS * COT = dxadN

BOVUIAV SNIAOW -- NOILVTINI a1934xa (axaan) “e2e

(C2T-IIeIdN/IdddN) % LTO + ((8-IIdIdN/Id3dN) * EE°O + ((4-)IdIdN/EdIdN) * G*O = IdddHIIN

(C29va9AV ONTAOH) NOTLVIINI 9ILS3WOd (IdddHIIN) “eze

OOT * (T - Sxx((T-)dNvdn)) = dHIdN

BLVY TWANNY--13A31 39TYd NI 39NVHO JOVINZOUZd (dHOdN) “Zze

YAXIdMdN + (dN)901 = (MXIdMdN)907

SAMOT3M 1NOdX3--X3ONI J9TYd JTVSIIONM “S'n (MXIeMaN) “920

Yad@odN + (dN9dN)901 = (d89dN)907

X30NI LH9I3M G3XI4--LINGONd SSINISNG SSOUD “S"N (dddn) “Sze

waIdadN + (dN)907 = (1d9dN}907

JONI 391Ud YAWNSNOD (Id3dN) “4z8

dNON/AdNSN = dNOdN

¥OLV1490 dNO (dNOdN) “£78

y39Ndn
+ (T - (1-)14NSHdN/T4NONAN) % OS + (CT - (T-)149HdN/T4DHdN) % OS = (T - (T-)AMOWANZANONAN) % COT

X30NI 3NTVA LINN LYOdWI Sa00a (AnoWdn) -2ze

290°0 Wns
gos°T 020°0 @-)
xos°T 220°0 a)
LoE°T 020°0 (o-)

ivis-1 1430991 ov

8/> {gaiyurisa SG = GON 206r ot 18 §96t_ BONN

st
(td) TtL" OHY 6%>° = SH1 NV3H 210

(9926°ZT) (29959°=)
CCCT-IOTIIN/( T-10TM4Id4N S01) * T43099V1 + (MXIdMdN)901 * 9S8ET°T + 28200" = (9VYNXdN)907

BN1VA LINN 1a0dx3 Wun IN3TUSV-NON (aynxan) “Tee

- 8oL -


ALIJN3QI X2IGNI_NOTLINGOUd WIBISNLSNGNT MOY JOVUIAV G3LKSI3M NI YNGISIa
X3ONI NOTLINGONd TWIBLSNONT MOY IOVYIAV G3LHOLIM AYLNOD- OT

alvad GNO@ YV11000uNS HINOW-<

( <) aivd yoslT

ALVa 1TSOd3G WYVWOUNT HLNOW-<

ALVY 1ISOd3d YvT1OGOUNa_HINOH-<

O°T = YaLYYNS HLYNOS = AWWNG TWNOSV3S:

00°T=Z26T - S1W3U39 ONIGNTIX] SLINGOAd ABVWId — XIONI 391d 140dx3 YV1100 NN
TIO SNTUNTIDX] - SLINGOYd “YOY ONY ANWHINd - X3ONI 39TYd ALIGOWNOD S4T
ALIINSGI S1¥0dx3 S009 W1OL IadO NI IwnGIsay

(YSN) (8SN)_S39THd AINIBND - SLYOdX3 SO009 ‘wl J3d0

AVG Yad STEHVa JO SNOTTIIW - S3TBLNNOD I3d0-NON_WOYS TIO 4O S1YOdNT “s°N
00°T=ZZ6T - X30NI 110 40 391¥d 1YOdx3 3OVYIAV I3d0

(T38ava/$SN) TIO 40 39TYd 1YOdXF J9VUIAV J3d0

HLYOM 13N 33d0

(YSN) ($SN) SATYd INFWIND - SLYOdWI SO00S W101 33d0

AVG Yad ST3MYVA 4O SNOITTIN - S3IYINNOD I3d0-NON WOYs TIO 4O SLYOWT 3SaNVdVE
‘AVG Wad STauava 4O SNOTTIIN - SAIYINNOD I3d0-NON WOUS ITO 4O SLYOdWT NVHUIS
Ava Yad ST3WIVa 40 SNOTTIIN — S3IYINNOD I3d0-NON HONS ITO 40 SIYOdNT “W'A
(YSN). ($S0)_S39T¥d INFWND - JONVIVE INNOID INIYIND Iad0

AVG Udd ST3WVE 40 SNOTITIN - S3IYINNOD I3d0-NON WOYS 110 40 S1YOdWI NVIGVNVD
(YSN) (8S) S39Tud INIVUND - SISV@ LOG - S1YOdWI SGOOS “sn TYLOL

‘en

(YSN) (SSN) S39TYd LNWINI - N¥dVC WOYS SLYOdWI SdOOS °S°n
(YSN) (88M) Sa9TYd INRRNI — ANVHYIO WOU SLYOdWI SGOOS °S°N
(YSN) ($SN)_S391¥d INFYUND - “HN WOYS SLYOdWI SGOOS °S°A
(YSN) ($SN) S39TYd LNFWND = VOVNYD WOYs SLYOdWT Sd00s_'s "A

(YSN) ($8) S39Tad ANFWIND = 99078 NYISV HOUS SLYOdI NVdVE _WLOL
(YSN) (850) Sa9T¥d INIWUND - “S°N WOYS SLYOdWI Sd00d ISaNVAVe
(ySN) (SSN) S39Tad INTWIND - SISva 100 - S1YOdWI SOO0S NVdve IWLOL
(YSN) ($80) S30TYd ANTWIND - GTYOM-4O-1S3Y WOUd SLYOdWI SGOOS NVdVe
CYSN) (SSN) S39TYd INRWND - 339d WOYS S1YOdNI SO00S aSaNvdve

80:
(YSN) ($SN) S39TUd INRWND - S.907 HONS SLYOdNI SOOOD NVdvC
CYSN)($SN) S3OTId INJBIND - SILVINNOD “ONT WIW-NON HOUS SLYOdNT SO009 NvdVe
(YSN) ($SN) S3dT%d INFWND = ANVHYID HONS SLYOdWI SGOOS Nvdve

(YSN) (SSM) Sa9TYd INRWND - “WA HONS SLYOdWI SQOOS Nvdve

(YSN) (SSN) S391¥d INFBIND - VOVNVD WOYs SLYOdWI SdOCS Nvdvr

(VSN) ($SN) S30T%d INFHYND = 19078 NUFLSVI HONS SLYOdWI NVWYIS W1OL

Ov $SN) S491¥d INZYWND - “SN HONS SLYOdWI SOOO NYWYIS

C
9TYd INSYUND - SISVA 100 - S1HOdWI SQ009 NVWY39 IW1OL
TYSN) (SSN) S39TUd INIWND - JadO HONS SLYOdWI SOOOD NYWYIS
(YSN) ($80) S32Tad LNRRND - S,I01 HOY S1YOdWI SGOOS NVWYaD
(YSN) (SSN) SaaTYd INRRIND - NVd¥r HONS SLYOdWI SOOOD NVWYIS
(YSN) ($80) S30T%d INSYWND - SATYINNOD “ONT WON-NON HOUS S1YOdWT SO009 NVHYaS
(YSN) (880) S39TYd INTWIND — “AN HONS SLYOdWI SGOCS NVHY39
CYSND ($80) S3DT¥d ANRRIND = YOYNYD HOY SLYOdWI SAOOS NVWY3S

)

(YSN) ($8) S39TUd LINWIND - “S°N_WOYd SLYOdWI SaO0S_—4'A
(VSN) (SSN) SAITd INFVUND - SISVG 100 - SLYOdWI SGO09 “A'N IW1OL
(WSN). ($80) S301%d ANSBYND - CTHOM-4O-1SIY WOUs SLYOdWI SGOCD "4°
(WSN) (SSN) Sa9TYd INRRND - Nvd¥e WOU SLYOdWI SGOOS °4°N

(YSN) (88M) S3D1Ud ANRRIND - ANVHYIS WOUS SLYOdWI SGO09 °°
(YSN) ($SN) Sd9Tad ANFWND - VOVNVD HONS SLYOdNI SGOOD “4'N
(YSN) (88M) S39TYd INFWIND - °S°N_WOYs S1YOdHI SGOOS NVIGVNVD

(YSN) ($SN) S39T%d INFWIND - SISVA 100 - SLYOdWI SACD NVIGYNYD IvLOL
(YSN) (58n) S30Tad INSWIND - GTOM-JO-1S3Y WOYs SLYOdHI_SGOCS NVIGYNYS
(SSN) 00°T=ZZ6T - SATYINNOD WOW ?X30NI_3NIVA LINN 1uOdxa

'dNO S3TMLNNOD WOW 40 FOVUIAV G3LHOTIM

) (SSN) SIOTYd INIBND - NVdVe HOYS SLYOdWI SCOOD NVIOVNVD

(YSN) (SSN) S391¥d_INFWIND = ANVHUIO WOUS SLYONI SO00S NVIGVNVD
CYSN) (SSN) Sd01Yd INFBIND - “A°N HOYS SLNOdWT SG00S NVIOVNYS
(O°T OL TwNba 13S) ANSXd7 YOs NOILVNDI NI YaLaWvuvd

NOILYNBI XFONI 3NIVA LINN 1YOdxX3 301 TIO-NON NI wndIsay
00°T=2Z6T - S.301 TIO-NON - X3QNI_3N1VA LINN 1YOdX3

00°000T=926T - (X30NI) SAIYINNOD SNTdOI3AIG NI_1NdINO YOs AXOUd
(YSN) SJ9TYd INIYUND - 3HOINI 31GvSOdSIO

$391Ud IN3YUND - IWOINI 31GvSOdSId

$39IYd 2261 - JWOINI_319VSOdSIG

($SN) SidT39Fa Y34dSNVUL

BLVATUd - Sid1393Y YASSNVUL

($SN) Sid3TDIY SWOINT LNSHLSIANI

$1d31939Y 3WOINT IN3WLS3ANT

(NBA) SdT3939 SHOINT INSWLSIANT LIFNTGNON

(NBA) SidZ393Y SNOINT INSWLSIANT 193810

W101 - S3IAURIS 40 SLYOdX3

($SN) SADIAYRS USHLO JO SLYOdX3

WLOL - SAITAYRS Y3HLO 40 SLYOdXa

BAVATUd - S3DTAYRS Y3HLO JO S1YOdXd

ANJWNUZAOS - 3WOINT INSWLS3ANI NVHL ‘W3HLO Sid3IIIY INNOIDV 39TANIS_TIV
($SN) $1dI3938 3WOINT INSWLS3ANI 193410

(Sn) SISV@ dO@ - S1YOdX3 SG00D 3SINVdVC W1i0L

SISva dO@ - SLYOdXI SO00D 3S3NVdve IWLOL

SISV@ dOG - SAIIAYZS ONY S009 JO S1¥OdX]

CV¥SN) S39TUd INZYUNI - SISV@ VIN — ‘SLu0dX3

$39IYd INIYUND - SISVG VIN - SLUOdX3

(VSN) S39IUd 2261 - SISVG VIN - S1¥Odx3

$30IUd 2261 - SISV@ VIN - S1¥Odx3

$39IUd 2261 - S1¥Odx3 S0O0D JS3NVdVT ‘W10oL

NOILINI430

- 912 -

(90x43) wad MOY
226 dimou
ST6 ‘aany

(90x4) uegrya

(90X32) waa
16 aay

(:90x3) oD

(90X3) Odd

(90X3) wWoIs4Id

(90X43) Y3ASXO
826 ASXO

(90x43) XTOSWNO

(90x3) 2£110d0

(90x3) 110d0
Os6 MNO
£26 ASWO

(90X3) XT09HCO

(90x4) X109H90,

(90x43) X109W30

Jwean3zo

(90x43) x109W90
OL
Lod AUN
ds ACN
OSL ANH
Sk Aan
sh ADNH

(90x4) AZrH

ANCH
995 ALCH
ss5 AUCH
865 Aor
oS ATCH
SoS AICH
2gS
oss AaCW
Iss ArH

(90X3) AZOW
2 ANSH
=8E ALON
oss ACSW
OLE ATS
18s ACSW
“ze AIS
ELE A3oH
2Le AQSM
Toz Anan
£02 ALBW
zoz AU3H
ooz AC3H
x61 A93M
Got A23H
Lo AN

AL
ob AYN
g26 ‘Q9XdSWIW
126 ANSSWOW
ob ACH
a> Ag:
9b

Cyd) WvudXd7

(90x3) wIANSX
2 1

(90X3) Alddnsad
ra VSNAGAC
see AGAT
929 ar
265 GANVELXE
18s ‘ANY.
6S GAASXT

AASXE

AQNASXC

ol AGASXE
985 ASXT
es QAAOsxr
<8S AOSxt
2385 AdOSXr

(90x43) ASOSXr
OS GQaAasxr
655 gaoxr
09S ASXT
L895 ASOXe
68s ‘SAINSSXC
06s AINSSXC

‘SNINSOXT
16S INSSXT
19S ‘xr

1 NOTLYNba | JINOWINH


-46-

trend. This equation is intended to capture the secular response of the
labor supply to changes in demand.
Sector IV.C. contains the identities which define capacity

utilization, the real capital stock, and the user cost of capital.

International Financial Transactions (Sectors V. and VI.)

International financial transactions include direct investment
flows. (changes in claims on, and liabilities to, foreigners), long-term
financial (portfolio) flows, other capital flows, and exchange market
intervention by the government. The original version of the MCM, which
was estimated over a period covering both the fixed rate period of the
1960's and the floating rate period of the early 1970's, included
explicit capital flow equations in the international sector. The
exchange rate was determined implicitly, using the balance of payments
identity as a market clearing condition. (If the exchange rate was held
fixed, the BOP identity determined the level of intervention.) Stevens
et ai. (1984) describe the modeling of the exchange rate in the first
version of the MCM.

The original capital-flow equations did not hold up well as
more data for the floating rate period became available. Several
attempts were made to implement a portfolio-balance model of foreign
asse!; demands for the MCM, and to estimate exchange rate equations
based on inverted net capital flow equations. Hooper et al. 1983

describe some of this work.


AINSSWN - AINSSXN = AINXL3NN

(sisve VIN) "SB9TAURS GNY SG009 4O S1¥OdX3 13N (AINXL3NN)

Y3NSOXN + INSXN + INOXN = INSSXN

(SISva VIN) S39Td 2261--S39TAMIS ONY S009 JO S1YOdXa ( INSOXN)

YANASOXN + AINSXN + AINSXN = AINSOXN

(VIN) S39TUd INIWWN--S3ITANIS GNY S409 40 S1YOdXa (AINSOXN)

w3NSOWN + INSWN + INOWN = INSOWN

(SISva VIN) S49T¥d 2/61--S49TANaS ONY SGOCS 40 ‘S1YOaWI CINSOAN)

Y3NASOWN + AINSHN + AINSWN = AINSOHN

(VIN) S30Tud INSWUNI--S39IAUIS ONY SdO0D 40 S1YOGWT CAINSOHN)

ASNVYLXN + AdNVYLXN = ANVYLXN

(d0@) S39Tad LNIYNUNI-

(408) S39TUd INSWEN: TANS ONY SGOGD JO S1YOdX3 (ASSXN)

ASWN - ASXN = Tvasn

(d0@) S39IAU3S 40 JONVIVE (IVEsN)
ASN - ASXN = TVEON

(dO@) JINVIVE Jadval ( TvEoN)

“LoL

“962

"S62

"SOL

262

“T6d

06L

“68L

- OT -


-71-

TABLE A-2: UK FISCAL SHOCK

UNITED STATES

Real GNP (%) 0.1 0.1 0.0 0.0 0.0 -0.0 -0.0 -0.0
Price Level (%). 0.0 0.0 0.1 0.1 0.1 0.1 0.1 0.2
Int. Rate (ST)(+/-) 0.0 0.1 0.1 0.1 0.21 0.1 0.1 0.1
Exch. Rate (FX/US$)(%) -0.0 0.0 -0.1 -0.0 0.0 0.0 0.1 0.1
Current Bal. (US$,B)(+/-).. 0.8 0.9 0.8 0.8 0.6 O13 +0.0 -0.5
CANADA
Real GNP (%)....-- eee e eens 0.0 0.0 -0.0 -0.0 -0.0 -0.1 -1  -0.1
Price Level (%).... 0.0 #0O.O 0.1 0.1 01 #O1 -1 0.0
Int. Rate (ST)(+/-).. 0.1 0.1 O11 0.1 0.1 0.1 -1 °0.1
Exch. Rate (US$/C$)(%) -0.0 -0.0 -0.0 -0.0 -0.0 -0.0 -0.0 0.0
Current Bal. (US$,B)(+/-).. 0.1 0.1 0.1 0.0 0.0 -0.0 Oo -0.0
GERMANY
Real GNP (%) 0.1 0.1 0.1 0.0 0.0 -0.0 -0.1 -0.1
Price Level (%). 0.0 0.1 0.1 0.1 0.1 0.2 0.2 0.2
Int. Rate (ST)(+/-). 0.0 0.0 0.1 0.1 0.1 0.1 0.1 0.1
Exch. Rate (US$/DM)(%) -0.1 -0.1 -0.1 -0.1 -0.0 0.0 0.0 0.0
Current Bal. (US$,B)(+/-).. 0.2 0.1 0.3 0.4 0.4 0.5 0.6 0.7
JAPAN
Real GNP (%)....---eeeeeeee 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Price Level (%) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1
Int. Rate (ST)(+/-). 0.0 0.0 0.0 0.0 0.0 0.0 0.0 «0.0
Exch. Rate (US$/Y)(%)...... °0.1 -0.1 -0.1 -0.1 -0.0 -0.0 -0.0 -0.0
Current Bal. (US$,B)(+/-).. 0.1 0.2 0.3 #04 #04 O05 0.6 0.8
UNITED KINGDOM
Real GDP (%)...... ee eeeeeee 0.6 0.6 0.6 0.5 0.4 0.2 «0.0 -0.2
Price Level (%) . -0.1 00 60.1 0.5 1.0 1.5 2.1 2.7
Int. Rate (ST)(+/-)......65 0.1 0.1 0.4 0.5 0.7 0.9 1.2 1.4
Exch. Rate (US$/PS)(%)..... 0.4 0.3 0.6 0.3 0.0 -0.2 -0.4 -0.6
Current Bal. (US$,B)(+/-).. -2.1 -1.8 -1.9 -2.3 -2.4 -2.5 -2.6 -2.6

NOTE: Amounts shown are deviations from the baseline path.
(%) = percentage deviation from baseline
(+/-) = absolute deviation from baseline


11g 08 aLun

198 998 S98 21@ OTe 90g 908 z08 10s oOs SLL HLL O9L ESL 624 LIL STL Tsun
$16 218 OTS 208 669 S69 69 £69 05 S05 00S TEE OFF SST SET OST £6 98 sun
. ots HLOUEN

oe WNYUN,

zie 918 wun

208 MONUN

eos soe sos ZTZ STZ e7an

Ste 298 298 198 098 698 ese 45e 408 Teh Zee FET 2st 02 an

$98 608 an

218 908 Jun

908 aun

tte ote aun

tie aun

ose Ost tan

68 waNSXdN

658 BZ Tasxdn

458 128 OSL BbL FHS OF ‘SVNXdN
G2 LS@ £52 269 169 1L9 £6 BOS G6b SLE 62E B2E S6T HST 2ST anaxdn
Tee 902 INS9XdN

ese SSL INSXdN

ere ‘waNOXdN

ise ‘4g9xdN

2s@ 028 ISL 662 SvxXdN

928 128 MXIdMdN

Zoe etl ONJIMdN
zye 622 82d ‘J4IMdn

zee ste £22 34IMdN
258 922 ‘D4IMdN

9y8 SIL dodn

228 = YaNSHdN

ze L9L Taswdn

28 OL INSOWdN

zze bd ANoWdN
$58 902 INSOWdN.

Ise Sb INOWdN
zze 61e ete 882 922 4NOWdN

9s@ Gs@ Ob2  ANI4SWdN

9se@ 228 Tb 149WdN

228 wa9NdN

988  4ANDOWdN

ove 658 ss@ 228 628 Sze s2@ OZ L2L 69 989 TOS Lov See HL TL 69 dNodn
sze wad@odn

ove sxe Sz@ o£ L5L 922 dgadn

98 98 198 6b8 OS 628 B08 LOB 669 OsT dxadn

41g 998 068 828 428 BSL ob. IdadN
ose MHOdN
L27e £6 dHodn

STL ANOHIdN
ose 22@ 928 ze eI zoe Toe 008 ss4 254 ISL
Os2 S2Z O22 SIZ 2TZ OTL GOL BOL LOL 90L FOL 069 9% EEE SZE ECE 89 dn
gse amnion
@:

gos 208
<08 SZ7Z 859 6b SET SST

o6e 918 Sv4Nn
962 AINXL3NN

662 INKL:
ste 908 gaNn
ote 212 STZ vaNn
sos +08 vInn
g0e TH
492 59L 292 AASHN

T9L SZ id As
T9L AGrASHN
992 292 092 OTL ASASHN

Tel 682 £92

gol £92 LGL
992 992 G9L AINOSHN

2 Y3GHNN NOLLYNBI | JTaVIUVA
= 202 -


MOU + S3IYINNOD WOW WON4 SLYOdWI 40 3YVHS V_SV MOY WON4 SLYOdNI

MOY + S3IYINNOD WON HOU SLYOdWI 40 JYVHS V SV "S°N SHL WOUS SLYOdWT
MOY + S3IBINNOD WOH WOUS SLYOdWI JO FYVHS V_SV_93d0 HONS S1YOdWI
MOY + S3IUINNOD WOW WOY4 SLYOdWI 4O JYVHS V SV S.IG1 HOUS SLYOdNT
MOU + SATYINNOD WOW HONS SLYOdNI JO JYVHS V SV S3IYLNNOD WOW-NON WOUS S1YOdWT
MOU + S3IYINNOD WOW WOY4 SLYOdWI 4O FYVHS V_ANVHUID WONs S1UOdWT
MOY + SIIMINNOD WOW WOY4 S1YOdWI 4O 3YVHS V SV “WN FHL WOud SLYOdWI
MOU + S3IMINNOD WON WOY4 SLYOdNI 4O 3YVHS V SV VOVNYD HONS SLYOdWT
LOUPMP NI ASNOW GSMONYOE 40 JOVINIIAd

ONTUNLIVINNVW NI 3Lve 39VM ATYNOH

SL3SSV NOIZYO4 13N 40 YOOLS 3H1 NO LNAWLSNCOY NOLLVN IVA

SLVY LN3WAOTdW3INN

(N3A) SYBNOTIYOS OL SITLTIIGVIT BLVATUd “S'N 40 XOLS

J WLINAGIS3Y - WiIdv 40 1SO9 Y3SN 1W3y

WIINJGIS3Y-NON - W1iIdvd 40 1S09_Yasn_ Wad

(WSN) 3AN3AZY LN3WNYZA09 TWLOL

BON3A3Y IN3WNYIA0S WLOL

OLLVY XVL 3WOINT 31vuOduOD

OILVY XV 3WODNI TVNOSUSd

CSN) YOLITS 3LVATUd OL SUaSSNVAL INIWNY3ACS

$30IUd INJBUND - YOLITS FLVAIUd O1 SYF4SNVYL INSWY3AOS

BONVIVG INSWAVd Yd4SNVUL

SINJGIS3Y AG O13H Si1SOd3d SIL

13N - SUY3NOTSYO4 NO SWIVID SNIWNVE Waal LYOHS JO NDO1S

SUSNSISNOS OL SITLIVIGVI1 SNINNVE-NON Wud LYOHS 40 WOOLS

($SN) S1ISOdaG N3A 3383

SUINOIZNO4 OL SITLIVIGVI1 ONIWNVE WL LYOHS JO AIOLS

NOLLYNOA SUSNOTINOA NO SWIVID OL10ILYOd WIINVNIA NI ADNVdaYISIG WOLISILVIS
‘SUBNSTINOd NO SHIVID ONDNVE Wal LYOHS 40 NOOLS

AVG Yad ST3vuVa JO SNOIITIN — AOS IO

(Q3AOWIY SLYOdWI) dNO JO FYVHS ITLSIWOG

S3UNINIGIT YNVE 40 3NIVA IN3YUND_SNIGNVLSLNO

aiva yas/ssn

ANSHISNPOY NOLLVNIWA SNIGNT9X3 SNOILVIOTIV Yds 3ATLVINAND

S39IAN3S NO JINVIVE

AGAr - YOLIV4 IN3WLSNTOV TVNOSV3S
AINSOXP '- YOLIV4 INAWLSNOY IWNOSV3S
INSSXT - YOLIV4 LNSWLSNTGY WNOSV3S
‘ALC - YOLIV4 INSWLSNTGV TWNOSV3S
ANVULC - YOLIVS INANLSNraY IWNOSV3S
AINSOWC - YOLIVA IN3WLSNCGY TWNOSV3S
'INSOWE - YOLIVs IN3WLSNCGY TWNOSV3S
ALI - YOLIV4 LN3WLSNCdy TWNOSV3S

AddI¢ - YOLIVA INSWLSACOV
A94IC - YOLIVS INWESNCGY WNOSV3S
Adr - YOLIV4 AN3WISNTOV IWNOSV3S
AdNOP - YOLIV4 IN3WISNCOY TWNOSV3S
MNGr - YOLIV4 IN3WLSNraY TVNOSVaS

- Avaor -' 4OL3v4 IN:

WLSNraY TWNOSV3S
‘$3AN3S39 SS3IX3
SLISOd30 3WIL YVIA_3NO NO 3LVS 1S3N31NI

NOLLVND3 S3AUTSIY 39US G3LVZANI ~ ASNOW TVD NO BLVe 1SIWIINT

SNVE J1VIS TIVHS AG O13H SLISOd3G SHI NO OLivy JAvaSaY O3YINDIY
SNVG 31VIS HNIGIN AG G13H SLTSOd30 BHIL NO OLLVY 3AYRSIY GIYINOIY
'SWNVO FIVIS 39YV1 AG GIIH SLTSOd3A SIL NO OLLVY 3AYaSIY GIYINDIY
SLISOd30 3WIL - “N04 + “SY JO NV “dOOD "TU1D OTLve 3AN3SIY a3u1No38
‘S3UNINIGIO WNVG NO OLLvad 3AN3SIY GIYINOIY

SONVG 31VIS TIVHS AG G13H S1ISOd30 GNVW3G NO OLLVY 3AYaSIY GaYINOIY
SYNVG 31VIS WAIGSH AG G73H SLTSOd3d GNVW30 NO OL1Va 3AYaSIY GavINDIY
'SYNVG J1VIS 39YVT AG _O13H SLISOdIG GNVW3G NO OLlvy 3AY3S3Y G3YINDIY
SLISOd30 GNYW30 - “YOs + “SV JO WNVG “dOOD “THLD *OLLVY 3AYRSIY a3uIND3e
S3AN3S34 O3YINDIY

SU3INSIZNOS OL SITLIVIGVIT AN3WIS3ANT 193410

‘SU3NOI3NO4 NO SWIV19 IN3WIS3ANI 193aT0

S3UNIN3G3O WAVE JO NOILINNS AlddNS 13N V WOUs - SIYMINIGIO YNVG NO O13IA
SUP JO 3OVUIAV ONIAOW V SV - $3uninga3g YNVG NO G13IA

JUN:
3LVa 1S3UZINI 39VILYON 39VEIAV
Adar 4O_3N1VA G3aIS3G
SLISOd30 N3A 334 NO JLVY 1SIYZINI YOs AXOUd
S3AN3S38 3304
sur GNY Gur 40 39VU3AV G3LHSLIM
NYdvr 4O WNV@ 3H 4O Jive INNOISIG WIIIIIO
SYNVG AJNOW 11SO0d30 NO SWIVI3 S3ILIYOHINV AYVLINOW
BLVa NOILVIANI_03193dx3 GV3HV Y3LYVNO JNO
00°T=226T - X30NI 3NTVA LINN 1YOdx3
00°T=226T - X3ONI 391Ud J1VSIIOHM
SNOSU3d 4O SONYSNOHL - NOLLVINdOd
00°T=2Z6T_- SLYOdWI TIONON
($SN) X3QNI 3NTVA LINN 1yOdWI
oo 26T - X3GNI 3N1VA LINN 1YOdHI
00'T=226T - SISV@ VIN - YOLVII90 1HOdWI
00°T=226T - YOLV1I390 LINGOYd TWNOLLYN SSOUD
BLVa_NOLLVISNI 03193dx2
Z6T - BOLV1430 331Yd ILLS3IWOd
=2Z61 - X30NI 391Yd Y3WNSNOD

NOILINI430

- STZ -

(90x3) AZLIMC
(90Xx3) ATULWLME
(90x43) AQLLME
(90x3)
(90x43)
(90x4)
(90x43)
(90X3)
(90X3)
gs9
199 gar
T Nar
(90x3) AdTanr
669 wonr
859 ¢None
OSS YSNALT
925 air
(90x43) AML
(90x4) AMLe
<5 ‘SSNANVULE
Leg “ANS.
009 Wanye
09 1
399 amuse
0L9 st
959 aaTaisr
£59 aise
(90x31) uaaisr
959 daisr
(90X3) 10s!
(90X3) woauvHsr
(90X3) 33:
(:90X3) aivauasr
(90x43) avaouasr
LoS Wi
(90X3) AGAAVST
(90x43) AINXAYSC
(90x43) ‘INXAVSC
(90x43) ALAYSr
(90x3) NVULaVSr
(90x3) AINHAVSC
(90x43) INWAVST
(90X43) AIravSt
(90X3) AddTAVSC
(90x43) AgaT4vSr
(90x3) ASS!
(90X3) AdNOAYST
(90x3) MNGAVSC
(90x3) avaaaysr
(90x3) ar
(90x3) aur
O19 ‘sur
(90X3) ‘slau
(90X3) Waar
(:90x3) iar
(90x43) vilaar
(90X3) oasuur
(90x3) Asuar
(90x3) sour
(90x3) war
(90x3) Jawar
(90x3) vouur
619 wie
945 WaLTar
£65 oaLTar
219 aa
119 wer
£19 Teer
19 War
919 ZAaur
L19 Asa
029 Jur
S19 sour
09 aur
129 eur
o29 Idf
g29 Anoxdr
29 IdMdt
(90X3) dodr
£9 TIONNdE
929 GANSWd
929 ANSHdr
oso INSOWd!
629 Node
£29 dxadr
229 woodr
229 Id3dr

| NOLLYND3 | DIINOW3NH


AFLAVS3/AVILA =

(WSN) CLVA) S3YNLIGN3dX] NO S3XVL reren)

ASJVS3/AD3 = VSNASI

(YSN) 'SaTHd ANZUEND - ‘STUNLIONSXG "INSHNRIAOS CVSNASSD

d3 * 93 = A92

“2er

“18ST

9$8/> Q3IVWIIS3 2S = GON __T® £86T gt. Ac) 1 6oet ?3ONVa
224T°T = MG S69° = SHT NVBH 60T° = ‘uz: sud
(S2o22°) (98226°T) (£9£29°2) (Cxge%°02) (220°)
£0 x 0620f0" - 23% 966080" - TR * 668201" - ASHA * $86ZTO° + S8rs6T" = Angas

S3TINd SWOASND (AOU

S874 *Q3.LYWILSa 4S = GON IB S86T OL TD 2et_ ?3ONVE
Sel" = Md £9T°OZ = SHT NVBH 268°T = ‘wars suo

OZ°TS) (s0028°s)
AQa * seceze" + £0986°2- = AoudLa - AVIII

civ ‘S3UNLIGNIGXa | NO ‘SIXVL CAV:

S8/> G31VWIISI 0b = GON Tb S86T OL 28 £26
£152 = M0 $86°T> = SHI NVBH 990°4 = “was 696°

?39NVa
sad

(92T66°2) (202695 (T6T02"9) Zo)
fb 989/5°S + 2b» osege° ~ Te * £599°9T + 433/7I0G0 * 9° 0 * 1053 x Stee z+
(otss0°T) (9209°2) (cogs6g: )
VSNAdGO3 * DAULI * TI6g9z°  - VSNAdGS3 * AULA * 296526" + B9Z°E = AONVULX] - ABL3 - ALT

s30Tad ANTUUND - 3NN3AI

ISHNUBAOS W101 (ALR)

s8/> ALVWILSS 4% = GON ob 296 86T 0. se, Té6T ?39Nva
(1°2) Sos" = OHA oO = SHI NYBH o = *ua 62s" sud
(d3 *
t 0900°T)

60d3)/TZ/( 00T/( FP MTNA = 0 SOz- = OWNS * Z2/((T-)dS9Na + dSOWa + (T- 190703 + Sa1DIa) * ‘rege! +

£6226") (ayeeg 2
d0d3/00T/414 * NN3 x STOZ00" + gto00. = (d3 3% dOd3)/ANVEL:

MOLITS ALVATUd OL ‘SUZ4SNVUL IN3HNUIA09 CAN

¥YO1I3S INSWNUIAOS *@°T°

-m-

“eLT

"LT

"OT

wn


W119 + 149 = d149

Saanora¥0d O1 S3TITIZEvII 40 wOLS (149)

390113 - 349 = 4349

SU3NOTIUOI NO SHIVID OF1041uOd (4349)

OND + SVIND + 90119 + 3d179 + 3189 = 949

SU3NSTIYO4 NO SWIV1D 40 39018 (943)

/118S09 - (T-)11S9 = 11s.

‘SY3NSIINO4 OL Peritarceal Wual-140HS BIVATUd 30 2018 | Gisa)

%/I1S03 - (T-)31SI = I1S9

SW3NSTSUOA NO SHIVIO WL-1N0HS ALVAIYd 40 WIOLS (91S9)

=o -

“£6T

261

“ToT

“OT

“ext


-15-

only be determined by simulation. Here we just indicate some of the
possibilities.

Figure 1 shows the interaction between the goods and asset
markets with the usual IS, LM, and BOP schedules. The figure also
includes a vertical line representing the full employment level of
output, which is conditional on the amount of factor inputs. Changes in
the amounts of either productive factor shift the full-employment output
level, a shift that depends on the elasticities of substitution among
different factors. Aggregate demand and supply schedules determine the
price level, but they are omitted for simplicity.

The IS curve is obtained by substituting equations (1)-(4).

into (5) to obtain
a) * *
Y= C(R,-Y,, P’) + T(K.y, AUC, AY) + G + NX(¥, Y”, P/EP*),

where NX = Xgg - Mgg. An increase in domestic interest rates lowers
aggregate demand and thus requires a reduction in real income to
maintain equilibrium in the goods market, giving rise to a negative
association between interest rates and income.

Asset market equilibrium is derived from equations (7)-(10),
which can be arranged to yield>

P+ Mglig, Y) = [1/r(ig, tg, p)] BU

5under the assumption of no currency holdings, money holdings just equal
deposits in the banking system. As a result the money multiplier, M/BU,
equals ((RR+RF)/M)~! which is equal to the inverse of the
reserve-deposit ratio.


2/((T-)914N + 914N) = SAVOTAN

Conv GOIdad) SY3INSIZYO4 OL S3LATIIavI1 AN3WNY3A0S (SAV914N)

2/((T-)994N + 994N) = SAVIDAN

(SAV GOTY3d) SY3NSI3YO4 NO SWIV19 .IN3WNY3A09 (aaveaan)

- 64T -


= SVJND

4/9VANGD + (T-)9VIND
“Ist

SSTLIYOMIAV AUVL3NON 40 SL3SSV NOI3UOI 13N JO 01S (OVINO)

/WYOND - (T-)YSND = YOND

S13ssv "IN3WN3AOS 40 3201S (9N3)

OALWMELSA 0% = GON 2B O86T OL £B OL6T *3ONVY
YN = NV3H = ‘waS 92E° = OSU

Te/T_ :
ol = sHT
9g"t-) (ot"2-) (o°2-) COT" T=)
= (839-) * £592°LL - 4209769 - ) * 192d + ((T-ISVAND * F606" -
3) (sT'T)
e9T2°2 ) | ® (169240 - T) = SV¥4NOD

C
COT-)9V4ND * S6ZEE'T
C
CT - (1-0839/839) * TS69°25 +
“6bT

WWIDTSIO “IA'D

- 95 -


-50-

demand equation, with foreign wealth and rates of return as explanatory
variables. Errors and omissions are modeled endogenously as a
short-term financial capital flow (equation 485). The net private
capital flow is determined by the balance of payment identity (486);
equation 487 is an identity which makes the stock of portfolio claims
consistent with the stock of liabilities and the net flow.

Sector V.C. contains an equation for the forward premium
(which is used in the portfolio liabilities equation) and some
identities.

All non-U.S. models contain an intervention reaction function
(Sectior VI). The specification of this equation is:

DNFA = ag + a (EI/EI-1) - ap NFAW4
where DNFA is the change in (and NFA is the stock of) net foreign
asset's, and EI is the spot exchange rate. This equation is based on the
assumption that central banks wish to smooth out fluctuations in their
bilateral dollar exchange rates and prevent large swings in their
reserves. The specification of these reaction functions in described in
more detail in Haas (1981).

The last sector of the country model (Sector VII) computes
weighted averages of foreign variables used in various specifications
elsewhere in the model. There are no behavioral equations in this

sector.


II. Theoretical Structure

This section describes the theoretical structure of the
Multicountry Model. We focus on a prototype model for a single open
economy, since the Multicountry Model (MCM) is essentially five single
country models linked together.

The prototype model is in many ways a conventional Keynesian
macro model. There are four domestic agents: consumers, firms,
commercial banks, and the government (fiscal and monetary authorities).
There are four markets in the model: domestic output, labor, money, and
bonds. Nominal wages are sticky, so that the amount of labor employed
is variable and output can adjust to meet aggregate demand. The
aggregate supply curve is given by producers, who set prices at a markup
over variable cost. In contrast to the goods market, asset markets are
perfectly competitive, and agents are assumed to be risk-neutral.
short- and long-term securities are assumed to be perfect substitutes.
Foreign and home currency bonds are also assumed to be perfect.
substitutes, so that open interest parity holds in the foreign exchange
market. Expectations about future variables are adaptive.

The prototype model is shown in Table 1. This model contains
the basic structural features of the MCM country model, but much of’ the
disaggregated detail in the full model has been omitted. Furthermore,
the functional form of the behavioral equations has been suppressecl, and

the notation has been simplified.


098°T 900°0 (Z-)
098'T <£10°O (9-3
099°T 610°O (s-1
098°T s20°0 (1
098°T 220°0 (z-3
098°T £0°0 (Q-)
098°T ¥40"0 a)
o98°T Ts0°0 (o-)

Avis-1 143039V1 ovT

S8/> ‘0R1VWIIS3 4 = GON TD £86T Oh se yet ?39NVa

(6°2) BEE°- = OHY TZ2°ZE = SHIT NVBN Z2z°s = “Ue sud
(9TS9s°T)
OOT * (T-)NIND * EGZeEE" - = (((T-1)d9/( T-1)AGAD)130) % T43099V1 +
(2986 °8T) (296°)
((2- Vad * TEZ8TO"O - (T-)udsIS) * ZTLs68" + (1-)Ud¥S *% TEZ8TO"O + STE29"> = add

$39TUd ZZ6T - INSWLS3ANI IVIINIGIS3Y J1VAIYd (udsI9) “BSE

699° 20s- SsLT'O ?HNS
250°T 9Z8°6s- = 205°T £%0°0 (s-)
92s°T HET'OL- — 2bL°T §90°0 (2-)
999° 892°06- = 926° T <£50°0 (t-)
os T OsZ*TOT- sst*o Tto‘o (o-)

dvis-1 243090V7 dvis-1 143099V1 v1

S$8/> <Q31VWIIS] 0S = od 2861 Oh <b eet ?39NVU
92T'2 = MG £<b°Ss = SHT VE elb°2 = Wa sud
(£22272)
(991130 * 256066" + (((T-1)8NINS)130) # 243099V1 + CCCT-1)dN99)730) * T43039V7 +
(922°02) (6S242°T)
((2- RANdNS * 8OE90"O - (T-)JYNdSIS) * ZOZTO6* + (T-JUNdD * BOE90"O + Z2009°2 = YNdIIS
S39TUd 2261 - INSMISIANI TVIINAGISSUNON Z1VAIUd (UNdJIS) “ZE5
2L6°0 WS
921'0 600°0 (s-)
ost Z 99T"O (2-)
960°ST £22°0 (t-)
TZL°9 o8b"O (o-)
4Vis-1 143099V1 svi
8/5 3 ag tas3 92 = GON TH £86T OL TD H96T saan
(2°6) G22" = OHN 90T°9 = SHT NV3W 800° = “Y°3°S 866° = BSYD
(gsesss°) ( 220682") (4T4060" 3

£b x 189000" + 2b x b£5000" + TB x Z£TO0O" + (((1)GA9)901) * T43099V7 +

(29020°T) (952260°)
UMNO x (T - (OOT/dX3d9 + T)/(OOT/SYD + T)) * OG0000° - 89TSTO’ = (999907

$301ud 2261 - UNLTON3dXa | NOTLdHSNOD BLVATUd (3) 9s

BWOINI JTAVSOdSIG GNV SNIGN3dS IILS3IWOD “V"I'S

30IS 1v3¥ IILS3WOd


(2°12) £6"

(2%%20°6

»
BWIL * T99TOO" + = (((1)dOd9/(1)319)901) * T43099V1 +

se/o
(9°S) 269°

6T8T9°Z)
CIH19 901 « 905160"

(9°22) 296°

+

ose"0 800°0- (-)
98>°0 400°0- (9-3
ooT'O 200°0 (s-)
SST‘T 020°0 (-)
ss2°< 90°0 (z-)
L0°9 180°0 (2-)
00°9 o2t'O (Tt)
t00's 9210 (o-)

AVIS-1 143099V1 sv1

?G31VWIIS3 = SZ = GON E06T ot Te, S76T + 3ONVe

g8/>
= OHY @Z6"- = SHIT NV3H ZOO" = . psu

(629T6"2)
S%E529°- = (d0d9/419)901

3940a uogv7 (a79)

oEZ"O *WNS:
T6e"2 290°0 (x-)
T6e"2 OOoT'o (2-)
T68"2 OoT'o (t-)
T6s"2 290°0 (o-)

AVIS-1 143099¥7 v1

SG3a1VWIIS3 68 = GON 26 £86T OL TD T96T =3ONVY
= OHY 666°6 = SHT NV3W 200° = ‘W°3°S £66° = O8SUD

(££802°2) 8568°8T)
BWIL * 822000" + ((T-)379)901 x 92zsee" +
(54302 'f
(CCCCI)IH19)901)130) * T43099V1 + 2° i = (3799901

AN3WAO1dW2 qa)

S8/> FORTIS, +9 = GON IB eer. ote TR £961 =39NVY
= OnU = SHIT NV3N 268°T = <68° = bBSYD
(e9vzse")
NNO * 28Z2/H"- = = dXAdD - (4-)MO/O0T * ((5-)MO - MO)

SNTUNLIVINNYH NI 3LVe 39VM ATYNOH (M9)

"29>

“19

"0%

AN3WAO1dW3 ONY S39¥M ‘@°AI*

- 6 -


Y3P/GAAOSHE = AGNASHT

(NBA) TW1OL ~ SFIIAYIS Y3IHLO 40 SLYOdWI (GAAOSWT) = °82S

- O2T -


00% * ((d3)907)130 = dHId3

BLVU TWANNY - 13A37 39Tud NI 3ONVHD SOVINSOUSd (aHOd) “622

CrxxZ9°0 TT OL
0 =F ) WNS/(( - WdNOdI/(( - WdNOd3 - ( WIdNSdF) * Of )exZ8°0 * 0 STI- = WHNS * OOT = dX3da

30vUaAV | ONIAOM - SNOILVL99dX3 AUVNOLIVIANI (dxX3d9) “@2z

(g-)dd * (1 + OOT/dx3da) = Td3

NOILVI4NI 03193dx3 avaHv-waLuyne- 3NO Oa 2xOud (ta) “L422

- 29 -


TABLE 9

~64a-

Overview of Exchange Rate Multipliers in the MCM

1 2

(1) US$ EXCHANGE RATE SHOCK
U.S. GNP (%)..........-.00- 0.2 0.
U.S. Prices (%)............ 0.2 «20
Foreign GNP (%)..... eseee 7001 -0.
Foreign Prices (%)......... -0.5 -0.

(2) YEN EXCHANGE RATE SHOCK
Japanese GNP (%)........... -0.6 -1.
Japanese Prices (%) -0.2 -0.
U.S. GNP (%)........ tena 0.0 0.
U.S. Prices (%).........006 0.1 0.

(3) DM EXCHANGE RATE SHOCK
German GNP (%).. -0.2 -0.
German Prices (%) 71.0 -1.
U.S. GNP (%).... es 0.1 0.
U.S. Prices (%)...........4. 0.1 #0.

Notes to Table:

(1) Sustained 5% Apreciation of the U.S. Dollar Against Four Currencies.

Pee

BPNeEN

-0.
-0.

“*1.
-0.

-1.
“1.

NEAN NOWN

NERO

-0.
-0.

-1.
-0.

-0.
-1.

NRNO wyre

ON)

-0.
-1.

-1.
-0.

-0.
72.

NRwOo BPOAUn

wRon

-0.
-1.

“1.
-1.

-0.
-2.

wore wuur

woru

-0.
1.

-1.
-1.
-0.

-0.
-2.

wOwd UuUne

POOF

-C.
“1.

-C.
-1,
-0.

-0.
73,
-0.

(2) Sustained 5% Depreciation of the Japanese Yen Against the U.S. Dollar.
(3) Sustained 5% Depreciation of the Deutsche Mark Against the U.S. Dollar.

Amounts shown are percentage deviations from the baseline path.

Foreign GNP and Price variables are non-U.S. 4-country averages using

multilateral trade weights and constant exchange rate conversion factors.

OPrnrAo

wound

FONW


-27-

equation on a net investment basis. The next term is the lagged
dependent variable, followed by the change in GNP, which is a proxy for
changes in the desired capital stock. The next term is the change in
the real user cost, followed by the change in capacity utilization,
which is another proxy for changes in the desired stock.

The equation for German residential investment (GIFPR) is
Similar to the nonresidential investment equation, except that the
activity variable is real disposable income, and the user cost appears
in level, and not change, form, This last detail is one of several
theoretical anomalies in the MCM investment equations; these represent
adjustments needed in order to obtain "plausible" results for the
estimated coefficients.

The German model also contains an equation for inventory
investment (equation 339). The specification is a standard stock
adjustment equation, with the desired stock assumed to be a constant
share of private sales (GC + GIF + GXG - GMG). This specification
perfcrmed very poorly for the other country models, and in those models
inventory investment is simply held exogenous.

Since the investment equations are estimated on a gross basis,
it is necessary to explain capital consumption allowances (CCAV) in
order to obtain net investment. The German equation is number 340. The
real value of capital consumption (GCCAVNSA/GP) is regressed on the real

capital stock (GK). This procedure in effect treats the consumption


-63-

part to the large depreciation in the yen. The higher real income and
depreciated exchange rates lead to higher prices in these countries.
Table A-7 presents the results for the Canadian monetary
simulation. (For this simulation the equation linking Canadian and U.S.
short-term interest rates was dropped from the model.) As expected, the
monetary contraction causes a steady decline in Canadian real income,
and a substantial appreciation of the Canadian dollar. Both of these
factors tend to account for the large decline in prices. The major
impact of the Canadian policy change abroad is once again on the United
States. The fall in Canadian real income reduces demand for U.S.
exports, which in turn depresses the U.S. current account and real
income. These effects then feed back onto the other three countries.
Table A-8 presents the results of the U.K. monetary shock.
Increased home interest rates and the resulting appreciation of sterling
work to decrease demand and output in the U.K. As a consequence of the
decline in output, prices are lower and unemployment is up slightly.
For this particular shock, the trade balance deteriorates because the
decline in demand reduces imports by less than the sterling appreciation
depresses exports. As in the fiscal expansion, the U.K. monetary
contraction has very little impact on the remaining MCM countries.
Tables A-9 and A-10 give the results for the German and
Japanese monetary shocks. The results for these two countries are quite
similar; in general, they replicate what we have seen for the other

three MCM countries. The rise in interest rates leads to a decline in


oss's
oss*
Os!

Os!
oss"s

Ceri

dvis-1 143039v17 ova

S8/> :O31VWIIS3  eE = + Zeer gS To eet ?FONVe

C£°T) Te2*- = ZOHY (T°T) 202° = ONY 40L°2 = SHT nan 290° “a esad
(gs2°6)

Ittea x Trezbz*  - — ((( (1-193 % (1-1) IdMda)/( 1-1 )9XdMOU)I9O1) x T43099V7 +

(10%zZ°2) (£zeee"S)
(d093)901 * $9062°2 +  99925°9-

(CSXdMOU/( 433 x ATOSWA - AZYX))907

oe2°T
££0°0 OTO"o- (y-)
set‘2 tz" (z-)
eto" S%b"0 Q-)
S02 °2 685'0 a)
y8b°0 £oT'O (o-)

ivis-1  143099¥1 ov1

S@/> 2GR1VWIISa | TZ = b) ze6r on. Te S96T_+30NVY
(z°>) Sb" = OHN STT*T = SHIT Nan Tor’ = “2S 99g osul
(SL>TL°2)
£0 x $T09Z0" -
(£T <6: ( 922802")
20 * SSZ8TO" + TO * S986TO" + (CC IIANOXdN/(.1)I33 % (I)ANOKd)901) x Td43099V7 +
1069°9) (Z41029"S)
(40931901 x s5toe- To +# sS2@T's- = — (ANSXdN/AINX 1907

Zse°t- ?WNS
619'T 22T"0- Cot-
$se°2 OT“ 0- (6~
96 "> 2aT"0- (ee
129°9 8ST ‘0- (L-
OL * 6ST"0- (9-
SLo"> YST‘O- (s~
69'S £oT*O- (o-
To2"s 92T*O- (-
oLe"2 £0T*O- (2-
g29°2 20°0- (t-
099°2 0%0°0- o-
dvis-1 143039¥1 ov1

s8/> Fanerisa 0b = GON + Zeer ot Te get ?JONVE

2££0°2 = MG 8°E- = SHIT NV3H SIT" = Lee sud

(SLE9E")
SWIL * 6950TO" + CCCCL)T39 % (L)IdMd3/CI TSP x CIVANSXd? 901) x Td3099V1 +
(940°22)

(d0939)901 + BZTZZ*o- = ((1ar x ANSXd?e)/ARPX 1907

('S°N $) "NM 3HL OL S1YOdx3 Sao09 aSaNvave C

- Gb

*96T

“S6T


-57-

appreciation of the dollar, as real output rises closer to full
capacity.

In general, all of these factors tend to cause the U.S.
current) account to worsen. An increase in U.S. income increases demand
for imports, while the dollar appreciation stimulates imports and
depresses demand for U.S. exports. The U.S. model exhibits crowding
out behavior after the first year of the simulation. The positive
effects of an increase in government spending are offset by both the
choking off of private domestic spending from higher interest rates and
reduction in net exports resulting from the higher dollar. By the sixth
year, real GNP deviates from the baseline by .1 percent. Even though
real GNP returns to the baseline level, the U.S. current account
continues to worsen.

The effects of the U.S. fiscal expansion on the four other MCM
countries are felt through the direct increase in demand for their
exports and as a depreciation of their exchange rates which increases
demand for their exports further. One striking result is that Japanese
real GNP rises throughout the period; by 1990 it is 1.7 percent over the
baseline value. This result is due to the higher level of Japanese
exports to the United States and, especially, the non-MCM rest of the
world (ROW). The ROW sector is assumed to be a dollar area, so the
appreciation of the dollar due to the fiscal expansion leads to

increased third-country exports to ROW.


-20-

or falls, however, the initial effect will tend to be offset over time
in the same way as described above for the fiscal and monetary shocks.
We might note here that there is no guarantee that the real
exchange rate will actually adjust so as to reach the new equilibrium
value. Because expectations are adaptive, and not "rational",
inconsistencies between expectations and realizations can persist
indefinitely. Furthermore, because we do not invoke rationality to
keep the economy on a stable path to a steady state, the long-run

properties of this model are essentially unconstrained.

Supply Shock

The initial impact of an exogenous reduction in labor
productivity is to lower the level of full-employment output. As a
result, there is an increase in the price level which lowers the real
stock of money and therefore shifts the LM schedule to the left. Output
necessarily falls, but the effect on interest rates is ambiguous.

Assuming that domestic interest rates rise, the home currency
appreciates, shifting the IS schedule further to the left. The rise in
interest rates also lowers investment and the capital stock, so that
output remains below the initial equilibrium level. On the other hand,
if the price effect is not strong enough to offset the fall in income
and raise interest rates, rates will fall and output will tend to rise

back toward its initial level.


-36-

authorities and the money supply adjusted to accommodate this rate. The
Bank of England's minimum lending rate is used as the target interest
rate for the historical estimation period. The spread between long and
short-term rates is determined by the stock of long-term government debt.
Thus in the U.K. model, unlike the other country models, there is a
direct link between the government deficit and interest rates. Stevens,

et al. (1984) provide more details.

Monetary Aggregates (Sector III.A.)

In the MCM, the demands for currency, demand deposits, and
time deposits are modeled separately. In each case the principal
explanatory variables are the opportunity cost of holding the asset and
the volume of transactions; the latter is approximated by either GNP or
personal consumption expenditures. The functional forms for the
equaticns for each country are as follows:

log(CUR/P) = ag + ay (L) log C + ap (L) RS

log(DD/P) = ag + a1 (L) log GNP + ap (L) RS

log(TD/P) = ag + a, (L) log GNP + ap (L) RTIME
where CUR, DD, and TD are currency, demand deposits, and time deposits,
respectively, P is the price level, RS is the short-term interest rate,
RTIME is the time deposit rate, C is real consumption expenditure, and

GNP is real national product.


- 95 -

*oot/assa + (T-)aS93a = as933

SONVa NO T1V2 40 3LVY IWI93dS (GS993)

2003 - <W3 = SSWa

£W ONITYILS - AlddMS A3NOW (SSH3)

*2s2

“TSs2


dM * d3IN = AdsIN

S3oTYd ANSWUNI--ANSWISIANI O3XI4 FLVATUd (AdsIN) “802

df x IN =

gored ANIYYNI-- FINLIGNIdXI NOILGHNSNOD SLVATY

a

“LOL

UYIAdNON + INSOWdN x INSOWN - INSSXdN * INSSXN + (9N + TIN + djdIN + IN) * dN = AGNON

'S391d AN3YYNI--LINGOUd TWNOILYN SSOYS (AdNIN) =~ 90L

¥3dNON + INSOWN - INSOXN + 9N + TIN + ddIN + In = dNON

820°0 TANS:
809799 (s-)
809799 910°0 (2-)
809°99 £20°0 (t-)
809°99 Ts0°0 (0-)

ivis-1 143039V1 ovT

. S8/> :Q31VWILS3 18 = GON 2b S86T OL Ib £96T *FONVY
(6°61) ST6* = OHY 292°SST = SHIT NV3H 9Sb°T = “Y'3°S T= BSD

(6g9Ts"S)
COCIIdA % (T-1)aN)) * T43099V1 + = SBOT*OZ- = = AVIIN

saomud “INSWUND-— JONVMOTIV | NOTLAHNSNOD - Wwitava (avaan) “OL

Qd4IN + SddIN + YddIN = dJIN

s3orda 2261 'IN3HLS3ANI a3xrd BAVATYA | (d3IN) “£02

£90°0 Wns
9L5°T 600°0 (r-)
39904 9T0°O (2-)
T90"s 610°0 (1-)
662°T 6T0°0 (o-)

4VIS-1 143099V7 v1

s8/> cat yHTsa TZ = GON 8 296T O1 TH _S96T *3ONVY

(1°2) 252° = OHY = SHIT NV3N Z8T°T = ‘a°3°S ST£* = bSaD
(Tos60°T)

(CT-)sd9NN) 13d * SesB°bs - = (((T-1)dN9NI13G) * T43039V1 +

(22029°2) (22vst"t)
(nan > 1)13G * 6TZ60Z2" + 260962°- = ((T-)SdWN)13G * 900990°0 - (Sd4IN)130

S3I1Ud 2261 --SFWNLINULS S.YIINGONd NI IN3INLSIANI ‘SSOUS | BLVATUd (sean) "202

- oT -


-52-

Iv. Simulation Results for the MCM

This section highlights the simulation properties of the MCM.
Two standard policy exercises, a fiscal expansion and a monetary
contraction, are simulated for each country separately, and for all five
countries together. In addition, two sets of simulations are included
to illustrate the response of the model to changes in exchange rates and
and the price level.

The analysis presented here serves in part to bring together
the information presented in Sections II and III on the theoretical
structure and parameter estimates of the MCM. The simulations also
illustrate the performance of the country models and the MCM as a whole,
and give the reader some impression of how the model can be used in
practice. Finally, these simulations document for the record the basic
simulation properties of the MCM.

This section begins with a brief summary of what the
theoretical model underlying the MCM predicts for the effects at home
and zbroad of monetary and fiscal policy changes. We then describe the
simulation design, and present the simulations results. Some summary
tables are presented in the text of this section; Appendix 1 contains a
series of tables giving more detailed results for each simulation.

These tables are referred to in the text.


SLz"STI- 99T"0 tWnS

w YN g08"z $20°0 (s-)
YN YN ObL'2 920°0 (-)
YN YN 109°Z £50°0 (s-)
YN YN g12°2 820°0 (2-)
So6°T S2b"es-  SZb°T £20°0 (T-)
So6°T ose"92- $2070 T00°0- (0-)

AVis-1 243099V1 Avis-1 1430991 Ovi

$8/> :G31VWIIS3 TZ = GON 8 286T ote ac) sneer ?3ONVY
(102) 926" = OHA £TZ*E2 = SHIT NVBN 269°T = “ad's sud
(Crg282°T)
Zpozd x T9O0L*T + (((T-1)0d9NN)T3G) x 2430991 +
(29922°L) (2611's)
NIN * 6698" + CCCT-1)dN9NI1390) * T430I9V1 + 8 SZTS"6b- = (T-)ddwN * SZ9S<T°O - dd4IN

$39Iud 2261

INSWISIANI IN3WdIND| JTavUNG SSOND JLVATYd (addin)

6oT'O ?HNS
Tee's 0s0°0 T-)
To6°s 660°0 (0-)

4ViS-1 143099V7 ov7

s8/>  :O31VHIISA GON 2D 506T hy TB, $96T_ :3ONVY

(°20T) 896° = OHY Ts6°22 = SHT Shyla L£92°2 = suo
(54698°S)

OOT * (T-)UINN x 9S50Z"E - ((I)GAN) * T49099V1 +

‘<85"4) (29200°¢)
68° ZTI-

(1
((2- ad IN % OFBEEOO - (T-IUddIN) * 99S60H° + =  (T-)ud"N * 6sess0°O - Yd4IN

$301ud 2L61--ANSMISSANI WIINSGISIY SSOWO FLVATUd (¥daIN)

280°T Wns
ge2°2 eIt'o (r-)
00s" tT 022°0 (2-)
689°9T £2£°0 1-)
0b0°S 924°0 (0-)

dvis-1 143039V7 ov1

$8/> :Q31VWIISA 22 = GON 2B get oe Tp ener Sonya

(Z°oT) 628° = OHN £29°9 = SHT NV3H 400° =
(82282°£) (esse d
((C1)GAN 1901) * T490INVT + = CC T-)dXAdN - (T-)SUN) * BVTZ00" - 42T69°- = = (9N)90T

$a01ud 2L61--JUALIGNadXa NOTLANNSNOD ALVATYd (90)

“TOL

“002

"669

BWOOINI JTGVSOdSIO GNV SNIGN3dS IILSaWOd “v"I'N

3QIS 13u 11SaWod =: 1300N “S°N

- 2oT -


-23-

The general logic of this organization is to develop a model
of increasing complexity. The country model starts with the real demand
side of a closed economy (sector I). The addition of sector II, the
current account, creates an open economy model. Sector III contains the
equations of the domestic financial market, which extends the model to
the standard IS-LM framework. The next sector, IV, endogenizes the
supply side of the model. Sector V extends the model to include
international financial stocks and flows and endogenizes the exchange
rate. Sector VI contains the authorities’ exchange rate intervention
reaction function. This addition augments the model to include managed
floating regimes. The last sector, VII, includes the definitions of

weighted averages of foreign country variables.

Equation Specification and Estimation

The MCM is estimated using a quarterly database over the
period from approximately 1968:1 to 1982:4. (The exact range for each
equation is given in Appendix 2.) The data are from national sources,
typically the central bank and the national statistical office, except
for bilateral trade data, which are from the Direction of Trade data of
the International Monetary Fund,

The equations are estimated using either ordinary least
squares or generalized least squares. While simultaneous equations bias
is obviously an important problem in any structural macro model, both

systems estimation and single-equation methods for correcting


$2°O % MNG3 + (T-)MN3 = MND

HLYOM 13N {MN3) =‘ 06T

$2°0 % VSNMNG3 + (T-)VSNMNZ = VSNMN2
css) HLYOM 13N (CYSNMNED “est

MNG4VS3 + VSNMNGZ = MNG

$391Ud INIMND - HLYOM 13N NI 39NVHD (MNG3) “SST

ASQ4STAVS3/d3
% 9ddIa + AVIDA - VSNAII3 + VSNAddTa + 43093 + ANVULW] - ANVULXa + SAINSOW3 - SAINSSX3 = VSNMNG3

“28T

HL1V3M ONY SONIAVS 3LVAIUd “3°I°

- = -


-81-

UNITED STATES

Real GNP (% -0.4 -0.9 -1.3 71.5 -1.5 -1.4 -1.3 -1.1
Price Level (%). : -0.0 -0.1 -0.4 -0.8 -1.3 -1.9 -2.5 -3.1
Int. Rate (ST)(+/-)... 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0
Exch. Rate (FX/US$)(%) -0.0 04 0.7 1.1 #15 419 2.3 2.6
Current Bal. (US$,B)(+/-).. 1.5 1.5 0.5 -0.7 -1.9 -3.0 -4.0 -5.3
CANADA
Real GNP (%) 70.4 -1.0 -1.4 -1.6 -1.7 -1.7 -1.7 -1.6
Price Level (%)....... 0.0 -0.2 -0.8 -1.7 -2.9 -4.4 -6.0 -7.8
Int. Rate (ST)(+/-)... 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0
Exch. Rate (US$/C$)(%).. -0.1 01 0.6 15 2.7 42 5.9 7.8
Current Bal. (USS,B)(+/-).. -0.2 -0.4 -0.7 -0.6 -0.4 -0.3 -0.1 0.1
GERMANY
Real GNP (%)......-++--- «. 70.2 -0.4 -0.4 -0.3  -0.0 0.3 0.6 0.9
Price Level (%). . 0.1 0.1 0.2 0.3 0.4 0.5 0.7 1.0
Int. Rate (ST)(+/-)... 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0
Exch. Rate (US$/DM)(%) -0.1 -0.4 -1.0 -1.8 -2.8 -3.8 -4.9 -6.1
Current Bal. (US$,B)(+/-).. 0.0 -0.5 -1.2 -1.9 -2.7 -3.5 -4.1 -4.4
JAPAN
Real GNP (%) 70.3 -0.9 -1.4 -1.7 -1.8 -1.6 -1.3 -0.8
Price Level (%)....... -0.0 -0.1 -0.3 -0.6 -1.0 -1.3 -1.5 -1.6
Int. Rate (ST)(+/-)... 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0
Exch. Rate (US$/Y)(%). 0.1 -0.1 -0.1 -0.3 -0.6 -1.1 -1.8 -2.6
Current Bal. (US$,B)(+/- -0.5 0.1 0.8 2.2 3.9 5.6 7.7 10.0
UNITED KINGDOM
Real GDP (%)......-eeeeeeee -0.4 -0.6 -0.6 -0.6 -0.6 -0.7 -0.7 -0.8
Price Level (%)............ 70.1 0.1 0.3 9.4 0.3 0.1 -€.2 -0.6
Int. Rate (ST)(+/-)........ 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0
Exch. Rate (US$/PS)(%)..... 0.1 -1.0 -1.9 -2.7 -3.3 -3.6 -3.9 -3.8
Current Bal. (US$,B)(+/-).. 0.1 «0.1 0.0 0.1 0.5 1.0 1.7 2.5

NOTE: Amounts shown are deviations from the baseline path.
(%) = percentage deviation from baseline
(+/-) = absolute deviation from baseline


4N333d - SLISOd3d 40 Saivor ara? HINOW-< NO 3LVY 1S3u31NT
4N39U3d ~- SLISOd3d 3WIL T1VWS ONY NOOSSSVd WAVE IVIDY3WWOD NO 31Vu
3LVY NOILVIANI GV3HVY GOIY3d JNO
NOILVNDI YOLVIIIG JITYd ATIIIGWI SidI3I3Y IWOINT YOLI4 NI TwndIsay
0O°T=226T - SISV@ VIN - YOLV1930 391Yd ATITIdWI SidI3D3Y JWOINI OLIVA
00*T=226T - SISV@ VIN - YOLV1430 39TYd ATT IdWI SidI393N JDIANRS Y3HIO
NOIL¥NOA YOLV1430 a0Tud ADT GHI Sidtaoay BOIAWIS Y3HLO NI ‘IwndIs3a
(A LINN L8OdX3 TWANLINITYSY-NON
“Oo ets 26 st. = _X3QNI 3N1VA LINN 1uOdx3 S009
00° to ier - SIsva VIN - 4Olv1430 iuodxs S38 TS ow ‘$0005
LLYN] you d3g 1480dXx3 S33DIAN3S GNY SGOOS NI TwndIs3zy
00°T=226T - sisvt YIN - SL¥OdxX3 3SIGNVHIU3W YO4s YOLV1I30 gored ATTA
NOILVNDA SLYOdXa SSIONVHIYIW BOs YOLVISIA JI Ad LTITIdWI NI WwndIs3d
NOILYN83 X3ONI 3NTVA LINN 1YOdX3 SGOOD NI ‘TwndIs3d
0O°T=226T - 3NIVA LINN 1YOdX3 IVENLINITUSV
O° T=226T - SLHOI3M 1WOdX3 - X3ONI 39IYd YIINGOUd
(S1HOTIM TYouxd) NOLLVMO3 X30NI 391Yd Y3INGOUd NI Senorsaa
00°T=Z296T - SYD TWUNLWN JO 39TYd GV3H113M IILSANOd JOVYIAV 4O X30NI
00°T=296T - SLINGONd WNITIONLId GINIIIY YOs XAGNI 3ITYd WIMGOYd
NorLvnp3 ASYINS YOS X3ONI_FITUd YIIMNGOYd HOS IVNGISIY
O°T=296T - ALIDIYLIFT9 NOS X3ONI 39TYd YIINGOYd
00°T=296T ~ ADSYINS YO4 X3ONI 391Yd YIINGOUd
00°T=296T - 1WOD YO4 X3ONI 391Yd Y3INGOUd
SNOSU3d 4O SNOITIIG - NOILVINdOd SN
NOILYNO3 YOLVI49G J9TYd LIDIIdWI SIN3WAVd 3WOINT YOLIV4 NI ivnarsay
00°T=Z46T - SISV@ VIN - YOLV149G 39TYd LIDTIdWI SIN3WAVd 3WOINT OL:
00°T=226T - SISV@ VIN - YOLV1d30 39TUd LITITIdWI SINSWAVd 39DIAURS pent
NOTLVNOT HOLVISIG JDTYd ALITIGNI SINSHAVG 39IAUSS UIHLO NI TwNGISTY
00" aS Z06r = _X30NI 3N1VA LINN 1YOdWI SG009
00° iS 2461 = SISva Vv V1430 1YOdWI S3DIAY3S ONY SGOOS
.LVNO3 Soiviasa. ‘ woanT S39IAU3S ONY SGOOS NI IyNdIsay
00°T=2Z6T - sisva" WIN ~ SLUOGHI -3SIGNVHIU3N YO4 YOLV1490 3I1Yd LIST IdWI
OO°T=2Z6T - 3NTVA_LINN LYOdWI TIONON
NOILYNd3 SLOT SSIGNVHOU3W YO4 YOLVI4S9G FDIYd AIITIdWI NI WwndIsay
(138ava/$sn) S33Tud ANTE = SN1VA_LINN LYOdWI wna outad
O*T=Z226T - XIONI 3NIVA LINN 1uO«
NoLivnbs | XaONE, Sawa LINN 18OdWI $0009 NI Twnarsaa
Q0°T=ZZ6T OL T3udva/SSN) YOLIVS NOISSaANOD
00°T=2Z6T - YOLVII30 dNS
NOLLWNbg X30NI_JHOI3M G3XI4 LoNGOYd SS3NISNG SSOUS. “SN Shas
10°T=ZZ6T - X3QNI 1HOT3M Q3XI4 19NGOYd SS3NISNG Ssowd “S'N
. BLVaNOILVIANI 03193dx3
- NOLLYNDS XaQnr 39Iud Y3WASNOD NI 1vNGIS3U.
T=226T = X30NI 39Tdd Y3WNSNOD
alva 7 S3QVM NI JONVHD J9VIN3IUId
aLVY TVANNY - Aa 391Ud NI 3JSNVHD J9VIN3IN3d
‘BLVa WONNY - dN9 NI 39NVHD 39V1N3943d
00°1=246T - YOLV1430 NOLiddOSEY
(13eNvE/SSN) YOLIVS dN-RIWH 3NIVA LINN LYOdWI iio
CVTIWN-THN) SLISOd30 3WIL Y3HL
HLYOM 13N Suyarad
SL3SSV NOIZYOS 13N IWIDI44O NI_39NVHD NOLLYNIVA
S13SSV_NOIZ80I 13N WIDISIO JO NOLS
S39IUd IN3YNI - SIsva VIN - S39IAN3S GNY SG009 40 S1YOdx3 13N
$39IUd 226T - SISVG_ VIN - S3IAU3S ONY S009 4O SLYOdX3 13N
B3OVY3AV SNTAOW Y3LYVND WNC - SINSWININGIY JAYISIA JO LIN SLISOd3d GNVWIG
(133HS 3ONVIVE 3AN3S3Y WY3GII) SLISSV IILS3WO0 _13N
TW - AlddMS A3NOW
QTW - Aldd NS A3NOW
ISWAVd 3WOINT INSWLS3ANI 1WLOL
ANBHISIANI 193410 SNIONTIX3 sunaiava SWOINT INSWISIANI JLVAIUd
S3ILTVIGVIT 31LVAIYd NO SIN3HAVd SWOINT JINIWISIANI TW1OL
(VSN) SINSWAVd 3WOINT INSWLSIANI 193410
SANBHAVE SHOONT ANSWIS3ANI 1938I0- YO1LIV4 IWNOSV3S
3403 OL SIN3WAVd 1S3Y3LNI LN3WNY3ACS
‘$391dd anawuna’= SNROLLViIOS SINSHAYG aed SNE easy
W101
$39Tad IN3YYND - NOILYNDA SLNIWAVd SrAee wa. NI_TwndIs3u
SWOINT IN3HIS3ANI NVHL Y3HLO S3IIAU3S JO S1YOdWI
$391Ud INFYNI ~ SINBWAVd J2IAN3S Y3HLO
$39IUd 226T - SISVG VIN - SIN3WAVd 39IAU3S Y3HLO
$391Ud ZZ6T - NOILVNDI SINSWAVd JITAU3IS U3HLO NI WOOTS3y
$321Ud IN3YND - SIN3WAVd 3IIAN3S
$391Ud 2261 - NOILVNBI SIN3WAVd 39DIANIS iq ee
S$39IUd 2261 - SISVG VIN - SLN3W.
‘SINSWAVd SrA Perea
S$32Iud INRRND - SISVG VIN - SIN3WAYd
$321Ud 2261 - NOTLYNBI SIN3WAVd 3WOINT NoLova'N NN Tvnatsaa
Sao1dd ieee iad a Fada SIN3WAVd 3WOINI YOLIVS NI WWNOGISIY
Td 246T - SISVG VIN - SIN3HAVd 3WOINI YOLIVS
(Ws) AVG Yad STSevG 2 soot i = SISV@_ VIN - SIYOdWI WN3TONL3d 40 3WNTIOA
SLMOdHI 1IO YOJ YOLIV4 ANBNISNCGY TWNOSV3S
sINaUvd MN oTANaS 0G OL INSWLSNOY S3SSO1/SNIVS Wildy)
I SLUOdHI

S1¥OdNI S0009 SHS 1V “IVNOSY:
‘S32IUd INFWINI - NOLLVNDA SLYOGNI ISIONVHIYIN NI ‘wNGIsay
BNTWA LHOSHI ALIGOWHOD TVLOL

NOLLINI430

- 612 -

SvxdN
928 MXIdMdN
(90x3) waXIdMdN
d NdSIMdN
d ‘V4IMdn
) uadIMdn
) “|a4IMdN
a4IMdn
34ImMdN
dOdi

439NdN

(90x3) AANIONEN
dNodN

(90x43) uadgodn
dgadn

 gxadn

(90x38) ugaTdadn
. Idadn
MHOdN
dHdn
£12 dNSHIdN
dn

(90x3) dnyidwon
2 a3on

MND
AaVANN

| NOTLvne3 | INOW3NH


28/5 :Q31VWIIS3 2 = GON over ote 10 £26T ?39NVa
(WN) 6° = ZOHY (0) 2°T = OHY WN = SH1 NV3W S800" = = bsud

(WN) cw)
(ML4I3NI9O1 * 9S9E296" + 8 LEST9°S = (OTI3NI9O7

X30NI 3LVa BONVHOXa aviiod “sn O31HOTaM-30veL gad (OTIIN)

(ML49I3N)901 = (ML4T3NISOT

(QI-ISvn®) “1M “aL “LILI wina- o($78Nd wos) Bva "Xa $ “AW (MLST3N)

GTZ" Oxx( (193 * 16009°2Z)/ZL°Z) * SLE" Ox (139
% OETE"O)/SSSE"D) * ShZ°Oxx((IIF * ££00°0)/6TSL00'0) * GIT" Oxx((I39 * LE600°T)/E00°T) = ML4bI3N

(QI-ISwnB) “4M "YL “LTILINW YuNd-¥( sand OI) aLVY “Xa Ss “AV (ML4STIND

ST2*Oxx( 139 * ANOXdd) * SBZ*Oxx( 193 x ANOXdI) * S°Ox*(T99 x ANDXdD) = dWOIdrN

NOILVNOZ J0VaL NYdvr-"S'n ‘S39Tud | ONTLIdWOD "RUINNOD | GUIHL | Cawoaarn)

G92 °Oxx( 139 * ANSXdD) * bE°OxR(T93 % ANOXdA) * G6E*Oxx( TSC * ANDXd) = dWOIdSN

NOILVNOI JOVYL NYHUID-"S°N S49TYd ONTLIdWOD AYLNNOD GUIHL (dWOIdoN)

SS2Z°Oxx( 133 * ANOXda) * Sb*Oxx( 139 x ANDXdD) x GLZ°Oxx( T3C % ANSXde) = dWOIdIN

‘SN. NI S39IYd SNILAdWOD AYLNNOD GUTH (dWOId9N)

NOILVNDI JOVaL VAVNVI-

((2T- OTIGasN/(2T- OTIadanN)
/COTIGAAN/OTIAdAN) * ZT"O + ((8- JOTIGIIN/(8- JOTIGdAN)/( OTLGasN/OTIadsN)
% EE°0 + ((- JOTIOIIN/( o- OTIGd4N)/( OTIGSAN/OTIGdIN) * S°O = IG1dHIIN

SLHOI3M INAWISFANI 193410 (39VA3AV ONIAOW) NOILVTANI NOIIXOd ( 1d1dH94N)

29220° T/C OTI3N/OTMSIdIN) * DOT = SN4IIdIN

SUVTI00 “S°N NI G3SS3Xdx3 X30NI 391Xd YSWNSNOD NOIIXOS (SNIId4N)

YaAdddjN + (M141d94N)901 = (OTM49d4NI901

OT-9 (SIHOI3M 30VUL) X3ONI 39TYd YINNSNOD NOTINOS (OTMIIdIN)

GSG6 22 Oxx( TZT0°T
% Iddd9) % S6T*Ox*( 9OZZT*T % Iddd3) * LOHSbZ"Oxx(H9L*OTT * Iddd?) * 9269T*OxxIddd9 = ML4Id34N

(SIHOT3M ZOVUL WUBLVITLINN) KIQNI 39TMd USWNSNOD JOVUIAV GALHOI3M NOIIUOI (MLdTdIIN)

- 2et -

“ole

"606

"806

“106

“906

“S06

906

"£06

"206

“106


2° ome( Tar
% ANOXAE) % BZEHET* OKC IID * ANOXdD) * LEHETS*OMK( 3D % ANIXdD) * HBZEHS“O*XANDXEN = MLIXd:II

BNIVA LINN 1LYOdX3 39VARAV NOIZNOI (MLIXd:

OWLM3**221I0d0 %* YWIM3*xSXdMON * PHIMZIeC( TIC
% ANOXdE) % SWIMS( TID % ANOXdD) % IWIM3( T3D % ANOXdI) % NWIMIXANSXdN = OMHAXd-I9

a01ud ‘uodxa 39vuaAv NOT3UOS COMHAXd:
OOT * (T - (>-)TM4dd3/TMId33) = TM4d013

3Lva NOILVTANI BOVUaAV NOTZUOS 031930xa (TM4da.

(S-)Msdd43 * 62422°0 + (4-IM4d43 *, BEEHBT“O = (E-)Mddd3
% 6S%2Z20°O - (2-)Midd3 * Z29886E°O - (T-)Midd3 *% SS6T9T*°O - Midd3 * Z2E45S°T + 68TTOO'O - = IMid:12

‘T3A37 39Tdd 39VU3AV NOIZVOS G31939dx3 (imag

(29°O/T )xx( OT Oxede % TZ°OxxdD % 60°O%KdD * £Z°OxKdN) = MddjZ

‘SLHOI3M G3XId

YO1V1430 NOIIddOSdY 39VU3AV NOIZYOS (M4:

29° OxKdNSdN % 1Z°OxxdNSdE x ST" OxxdNSdD % SO" OxxdNOdD = 94dNOd13

(O3LHOT3M ano) wou’

‘133/IK1M3%x( 13D * dd) % CXIMIxx( TIC % dO) % NXLMIRKdN % OXIMI( TID % dD) = OMXAdAD

(G3LHSIIM JIGVINVA) - 4O1V1430 NOTLauOSEV 3OVUIAV NOTIYOS COMXAdS3D
ZS" OXXNNN x TZ OxXNAT x ST" OxxXNND x SO°OxXNND = MOINNIZ

(O31HOT3M NO) INBHAOTAWINN NOTSUOS (MOSNNSI

(29° 0/£2°0)%AdNIN
(£9°O/%T" 0 dC ADNOE 3% BIC) % (L9°0/ TZ°O)xx(ADNID * UID) * (29°0/60°0)%x( AMNOD * YI) = LSAMNIAD

(Q3LHST3M JOVaL) dNS TWNIWON NOTauOS (Laan.

(29° 0/2 "0 )x*dNON
% (L£9°O/OT 0 eC ANSE 3% YRC) % (£9°O/T2°O)HC NID % HID) % (29°0/60'0 )xx( dNID x YI) = MLSdNO:IT

(OALHST3M JOVUL) dNO Iv3a NOIZYO4 (MLIANO:

-u-

“6zE

"82s

Lee

“92

"Sze

"szE

*22e

Ize

“Ooze


-41A-

TABLE 4

Elasticity of Absorption Price with Respect to Selected Variables

VARIABLES
Wage POIL/EI PMNOIL UN*
COUNTRY

Canada...... eee 0.70 0.03 0.23 --
United Kingdom. 0.74 0.04 0.25 -0.001
Germany........ 0.71 0.02 0.25 0.048%
Japan....... wee 0.55 0.0004 0.07 -0.010
United States... 0.65 0.07%** = -- -0.006%*

Notes to Table:

* semi-elasticity
** coefficient estimated on (1/UN)
*kk total energy price


-76-

TABLE A-7: CANADIAN MONETARY SHOCK

Sustained 100 Basis Point Increase in Treasury Bill Rate

YEARS AFTER SHOCK -

UNITED STATES
Real GNP (%)..........005 +. 70.0 -0.1 -0.2 -0.2 -0.1 -0.1 -0.0 0.0
Price Level (%)... - 0.0 -0.0 -0.0 -0.1 -0.1 -0.2 -0.3 -0.3
Int. Rate (ST)(+/-)... - 70.0 -0.1 -0.2 -0.2 -0.2 -0.2 -0.3 -0.3
Exch. Rate (FX/US$)(%)..... -0.5 -0.8 -1.3 -1.7 -2.2 -2.7 -3.3 -4.0
Current Bal. (US$,B)(+/-).. -0.7 -1.9 -2.6 -2.9 -2.5 -2.5 -2.2 -1.6
CANADA
Real GNP (%)........00 e000 70.5 91.2 -1.7 -2.0 -2.0 -2.1 -2.3 -2.5
Price Level (%).. 70.9 -1.6 -2.6 -3.9 -5.5 -7.4 -9.5 -11.7
Int. Rate (ST)(+/-)... - 10 10 210 21.0 10 1.0 10 1.0
Exch. Rate (US$/C$)(%)..... 3.5 5.2 7.1 95 12.4 15.7 19.4 23.4
Current Bal. (US$,B)(+/-).. 0.9 1.3 1.6 2.2. 3.1 3.7 43 5.0
GERMANY
Real GNP (%)....... seeeeee + 01 0.1 0.1 0.1 0.1 0.1 0.2 0.2
Price Level (%).. 0.0 0.0 0.0 0.0 0.1 0.1 0.2 0.2
Int. Rate (ST)(+/-).... 0.0 -0.0 -0.0 0.0 0.1 0.1 0.1 0.2
Exch. Rate (US$/DM)(%). “0.0 0.1 0.2 0.4 O15 0.6 0.7 0.9
Current Bal. (US$,B)(+/-).. 0.303 06 #10 14 2.1 3.0 41
JAPAN
Real GNP (%).. + 0.0 -0.1 -0.1 -0.2 -0.2 -0.2 -0.3 -0.3
Price Level (%).. 0.0 0.0 -0.0 -0.0 -0.0 -0.1 -0.1 -0.1
Int. Rate (ST)(+/-)... 0.0 -0.0 -0.0 -0.0 -0.0 -0.1 -0.1 -0.1
Exch. Rate (US$/Y)(%).. -0.1 0.1 0.2 0.3 0.4 0.6 0.7 0.9
Current Bal. (US$,B)(+/-)... 0.1 -0.1 -0.5 -0.7 -0.9 -1.1 -1.4 -1.8
UNITED KINGDOM
Real GDP (%).. 0.1 0.1 0.2 0.1 0.1 0.1 0.1 0.1
Price Level (%).. : 0.1 0.1 0.2 0.2 0.2 0.2 0.3 0.3
Int. Rate (ST)(+/-)... 0.1 0.1 0.2 0.1 0.1 0.2 0.2 0.2
Exch. Rate (US$/PS)(%). -0.3 -0.3 -0.1 0.0 0.0 0.1 0.2 0.3
Current Bal. (US$,B)(+/-).. 0.1 0.0 0.0 -0.1 -0.0 0.0 0.0 0.1

NOTE: Amounts shown are deviations from the baseline path.
(%) = percentage deviation from baseline
(+/+) = absolute deviation from baseline


(SISV@ dO@) S39IYd INIWUND

-SLYOdXx3 SGO0S W101 (AS*N)

SVvxXdN * VOXN = AVSIXN

S3IUd LNIWNI--SLYOdXI SOON WUNLINITUSY (AVSXN)

$391dd LN3duNI-

dvis-1 243020V1 dvis-1 143030V1 ov

$8/> 031VWIIS3 9 = GON) S86T OL TD 896T *3ONVY
S68°T = MQ 985°2 = SHT NV3W 280° = “Y°3°S 826° = BSYD
CCCT-1)SN4IddN/CT-1LISVXdN * 00T)9OT) * Z243099V1 +

(CC 2-1) IdddN/(2-TISVXdN *% OOT * OOTISOI) * TI3090V1 +

22825°8) (22569°8)
62998" L-

C
(CHMXdND4N)SOT * HZTEZ°T + =  (v9xN)307

S30Iud ZZ6T-.

BWNIOA LYOdX3 TWUNLINITUSY (¥SKN)

dse°T- Ts0°T-
2t0°< 22T'0- 9TT°OT 690°0-
2t0"s y1Z"0- 9TT"OT T2t"o-
2to"s 922 °0- 9TT'OT 9ST" O-
210°s 905 °0- 9TT'OT £ZT°0-
210°S 905 "0- 9TT‘OT ELT" 0-
210°S 942 °0- 9TT'OT 9ST" 0-
210°s Tz"0- 9TT "OT T2T-0-
2t0°s 22" 0- 9TT"OT 690°0-

ivis-1 2430991 AVLIS-1 143099V7

?JONVa
= bsud

S8/> :Q31VWILS3 69 = GON  %d 286T OL TD 896T
(zo) 905° = OHY 26° = SHT NV3N 920° = “Y'3'S 166"
COCT-D)AIdaNSN/C(T-IATddNSA1 + (T-L)ATddNSII) 1901) x 243099V1 +
CCCT-I)OTMS3dSN/( T-ISVNXdN % OOT * (T-1)OTI3NISON) * T43039V1 +

(9862°2) (£222°6) (26S852")
(CWMXdNS4NIS07 * 28Z7S2°T +  (VNXSGAGN)SO1 x BZTIS" + 6ISSE°- = C¥NSXN 1907

"2G

*TSsZ

“osd

ObL

‘$0009 40 SluOdx3 “G°II'N

- sgt -


(VSN) (SSN) S33TUd IN3WUND - N¥dvr OL Sieaa Sao03, NVIGYNYD

(YSN) (SSN) S33Tad IN3AUNS - ANWHUSS O1 SivOdX3 SGO09 NVIGVNVD

(VSN) (SSN) S33TUd INFUND - “HN BHL OL Sioa ‘$0009 NVIGVNYD

AI40¥d 3AY3SIY WYIdIs

'$391Ud IN3FWWNI - JWOINI 31GVSOdSIG

$39IUd 2261 ~ 3WOINI J1GvSOdSId

SIN3WAVd Y34SNVUL 13N

SNOISN3d ONV SJINVILIWSY - SINSWAVd USISNVUL JLVATYd 13N

SINVUS - SUA4SNVUL LNAWNYIAOS 13N

$1dI393u 3WOINT AIN3WIS3ANI W101

$1d13938 3WOONI IN3WIS3ANI 193410 WLOL

S1dI393Y SWOINT INAWLS3ANT OI1041N0d J1VAIYd

$1dI3939Y 3WOINT IN3WLSIANI OI1031NOd INSWNYZA0S

WN3IOULId - SidI3D3Y JNOONT ANIWLS3ANI 193uIG - YO12v4 TWNOSV3S

SONTUNLIVANNYW Y3HLO ~ Sid13234 BWOINT IN3WLS3ANI 193NI - YOLIV4 TVNOSV3S

WN31ONL3d - SldI3IFY SWOINT INSWISIANI 19340

CVS) SALVE TWANNY WN310UL3d - S1idI3934 3WOINI IN3WIS3ANI 193410

UYAHLO - S1dI393Y 3WOINI AN3WISIANI 193810

(VS) S3LV¥ TWANNY - U3HLO ONY ONTUNLOVANNVW - S1dI399Y 3WOINT IN3WLS3ANI 193410

SNIUNLIVANNYW - S1dI393¥ 3WOINT ANBAISRANT 493410

SBLVITI44V JONYNId S3TTLINV SONVTU3HL3N WON4 3WOINT IN3WIS3ANI 193¥T0

$30IUd INZWUND - NOTLYNOI SidI393Y JITAYIS Nr ‘WwnaIs3a

SBIIAUIS JO SLYOdXZ IWLOL

s39Iud ANTHUND = ag thie S1dI3938 JIIAUIS YIHLO NI TwndIS3y

I INSWIS3ANI NVHL Y3HLO S39IAYIS 40 S1¥Odxa

saoite Pangan = SISV@ VIN - SidI393Y JDIAUIS Y3HLO

$30IUd 2261 - SISVA VIN - SidI393¥ 3DIAUIS Y3HLO

S39IUd 2Z6T — NOTLVNOI S1dI39IY FITAYIS Y3HLO NI IwNdIS3y

$39IUd INFUWND - SISVa VIN - SidI3934_JIIAYRS

S39IUd 2261 = NOLLvNO3 sidtaoay BOIAUSS Way NI Wwndis3y

$30Iud 2Z6T - SISVA VIN - SidI393N JITAYRS 1V3Y

SldI993Y JOTAWIS - SAIVS AYVIITIN “SN

S39IUd INIWUND - SISVA VIN - SidI393¥ JWOINI YOLIV4

$391Ud 2Z6T - NOILVN3 S1dI393Y IWOINI YOLIV4 NI IwNGIs3y

$39TUd IN3MIND - NOILYN®I SidI39IY IWOINI YOLIVS NI IwndIsay

$30IUd 2261 = SISV VIN - Sid1393¥ 3WOOINT YOLIVS

CYSN) AVG Y3d STIMVE 4O SNOITTIN - S1YOdX3 110 40 3WNIOA

‘VaVUSI OL SIIVS AUVLITIN

$1dI3939Y JIIAYIS dOd OL ININLSNFGY S3SSOT/SNIVS I1IdVD
$1Y0dx3 SG009 *S°N YOLIVA IN3WLSNTGV TWNOSV3S

$391Ud IN3YUND - NOILVNB3 SGOOS 40 SLYOdX3 NI IYNGISIY

S$301Ud INTWND - SISVa dOd - SLYOdXI SOI Wi0L

id NINN - NoTLynea S3DIAYRS GNY SGOOD 40 S1¥Odx3 NI ‘IwndIsaa

ITY INAWUND ~ orev '@ dO@ - S3ITAN3S GNY SGOO9 40 S1uOdX3 WOE

SISva VIN - S39IAU3S ONY S009 40 S1¥Odx3

$39Iud ier = SISV@ VIN - S39IAUaS GNV S009 40 SLYOdX3

$391Ud 2Z6T - NOILYNOI S3ITAWIS GNVY S009 40 S1YOdx3 NI IwndIsay

‘$49IUd INIYYND - S1wOdxX3 dod OL INAWLSNTGY G109

S39IUd INIWWND - SLYOdX3 JSIONVHIYIW

NOILVNDI SLYOdXI ISIONVHIUIN TW3Y NI TWNGIS3y

(VIN) S39IUd 2Z6T - SL¥OdX3 ISLONVHIYSW Tvae

‘S39TUd ANIBWND - SLYOdXI TWANLINITYSV-NON

S39IUd 226T - S1YOdX3 SGOCS TWYNLINITYSY-NON SN

S39IYd INFAYND - S1YOdXa TWaNLINITUSV

$391Ud Z226T > S1YOdx3 SGOOD TWANLINITUSY sn

|S39Iud 226T ~ S1¥odxX3a $0009 SN TVLOL

SAYOdWI 13N4-NON NO LHOT3M

YNOH/$SN - (YOLIIS SSINISNG JLVAIYd WYV4 NON) 3LVY 39VM

-IN3DU3d - (1¥9019) FLVa INIWAOTdW3NN

ANSHISIANI WILNSGISIY YO4 WA1IdVd 40 1503 Y3SN W3e

WiIdv 40 1S09 Y3SN 1V3e

S3TavUNA YIIMNGOYd YO4 WALIdvI 3O 1S09 YISN 1W3¥ 40 IN3NOdWOD

S3TGvNd_YIINGOYd YO4 W1IdVI 40 1S0D Y3SN IIe

($1d1393a XVL 1V907 GNY 31V1S 1Wd3034) 3NN3AIY LN3WNYIAOS

(S1dT393a XVL 13901 ONY 31V1S ‘Wwaag34) 3NN3AIY_ IN3WNYIA0S

aLVY Xvi SWOONT J1VYOduOD

aLVY XV1 3WOONI TVNOSY3d

JJ T= *31GVIYVA LSIHS 31Ve XVL

a01g3e StVALud OL SY34SNVUL INSWNYSA0S

3SN3dX3 NOILVI99Nd30 WOUs O3LINGIA 11039 XV INSWLS3ANI JO NOTLYOdOYd

(VSN) SIN3GIS3Y A@ G13H SLISOd3d 3WIL

0¥3Z 01 1WNe3

Salva 4dTaVL

WOOLS WAIdVD G3XId FLVAIYd 1W3Y YO4s AXOUd

S339IAN3S JO JINVIVE

AN39U3d - 3LVY LSIVIINI LISOd3G SONIAVS ONV 3HIL

STII AUNSV3UL HINOW-< NO Jive

4N32Uad - SHINOW 9-5 31VY LSIYZINI Badd IWIIYIHNOD

(VSN) SW3LI LISOd30-ON ISNIVSY S3AU3S3Y G3FYINOIY

SNOLINLILSNI Y3GN3W-NON - 3AY3SIY G3YINDIY

S3AN3SIY G3IYINOIY

‘SLNNOIIV MON NO 31VY SNTII3D

4N39U3d ~ 31VY 1SIYINI GNOd siaeniaabe Waal 9NO7

4AN323U3d - JLVa 1S3Y3INI GNOG VVV Wud SNOT

S39VOLUOW NO O13IA 3AI1939443

SYNVG Y3GN3N TV LV S3AU3SIY 33N4

AN39U3d - JSVAIAV ATUILYYN® Jive ANNOISIG 3AvaSaY WYsGa4

z

NOILINII30

- 022 -

es AIX
2s ASIX
26T AZ:

yaya AdddAN
TZ AgAn
2TZ a.

x62 ANVaLXN,

el A

6lL AddASxXN
LL AdNASXN
S. ASNASXN,

(90X34) aun

| NOILvnba | JINOW3NH


£97" 0- sHhnS

VN 600°0- {Z-)
Obst 210°0- (9-)
Ob "T 220°0- (g-)
009°T $20°0- [o-)
ove-T 920°0- (£-)
o92°2 §20°0- (2-)
Ozs"T 220°0- (I-)
2£2°0 ZT0°0- (0-)

dvis-1 143039V1 ov

.28/b iQ4LVWIISI 9F = GON $b OS6T OL TB Z2Z6T 2FONVY
(WN) SZE° = ZOHN (0) S29" = OHY WN = SHT NV3N 25° = "WSS 59° = BSYD

- (wn) .
CCT)O34) % T43099V1 + TUN + 815996" = BAH

a.va GNOSOUNA (a3IWYy)

29/> ALVWIISS 95 = GON 4d O86T wh. 2 zeer_ ?3ONVa
(0) SS" = OHY VN = SHT NVBH Is" = bsu3
(80°) (g00°T)
MLdSUIN * 9569ST° + G6ISEZE° - SUN = G3e

BLVY LSIYBINI YvTIOGOUNA HLNOW 33avHL (:039N)

ST2*OxXSUA % GLE" OxXSUD % SbZ"ORXSUT % SIT"Ox*XSYD = MLdSYIN

SAHOTSM JOVYL WYALVTILINA SILVY 1SIYAINI WY31-1YOHS NOTSYO4 (MLISHIN)

43034 + (MIG4Y34NISOI = (OTIGIIN)SOT

CSLHSI3M INSWLS3ANI 193NIG) X3GNI 3LVe BONVHOXa (otraaan)

SSS6Z2 * Oxx( 439/785 SE)
% SOT" Oxx( Y939/52°25Z) % S095Z0°Oxx( URF/6TSE"O) % LTOOS* Oxx( Y39/EEE"00T) = MIGSY3IN

(S1H913M "INWLS3ANT 1934ur0) X30NI iva 3ONVHOXa (MTasuaan)

~ £8T -

“ST6

“oT6

"S16

“216

“Tt6


AdNVULWD -

00% * ((dN99)907)13G = dNEHOdD

BLVY TVANNY - dNO NI JONVHD JOVINS9U3d ( dNOKId9)

d9/A0A9 = GAD

$30IUd ZZ6T - AXOYd 3WOINI 31@VSOdSIG (GAD)

AGA4YSD * IVSNAGAD = AGA

$39IUd IN3YNI - 3WOINI 3IGVSOdSIG (/AGA9)

AdNVULXS + (ADNVYLWS - SNANVYLS) + (ADNVYLXD - VSNAL9) - VSNAVII9 - VSNAdNSD = IVSNAGAD

IIdvs9/II9 = VSNIIS

(WSN) S39TUd 2261 - IN3WISIANI AMOIN3ANI (VSHII9)

AII4VSS * VSNAIIS = AIIS

S39THd INFYUND - ANSWISIANT AUOLNGANT (AIO)

dQ * VSNIIS = VSMAIIS

(VSN) "'S30r¥d ANZYYM - INSWLS3ANI AYOLN3ANI (VSNAIIS)

AdIdVS9/( 9419 + d4I9) * dD = VSNAJID

(YSN) S3OTUd INIWND - INBWLSIANI G3XI4 Wid (VSNAdTO)

AIO * dD = AdID

S39Tud INFYUND - INSWIS3ANI G3XI4 W1OL (AdTad

9419 + ddI9 = JID

S39IUd 22461 - IN3WLS3ANI G3XI4 1101 (419)

-GL-

“LSE

“95s

"sss

“£95

its

Iss

‘oss

“bt


- t-

4309f * SZ°O + (T-)La309r = 193097"
1930 INSUIAOD 40 OO1S (14309r)
ANVELE + ALP - AS4IC + ASr = 43097
SESVE VIN - 1797130 INSHNUIAGD ( 4309")

ALAVSP/ALC = VSNALIY

C¥SND BNN3ATY LN3HNYIA0S WWLOL CYSNALE)

“9S

“SES

“ors


dN5d9/101109 * SZ°O + (T-)TGLTHS = TOLTHD

oto°o 290°0 *WAS

992°0 000°0 96! Too"o (sT-)
900°T 000°0 96! 200°0 (oT-)
fxe°T 000°0 96! £00°0O (sT-)
262°T 000°0 ‘96! 00°00 (I)
LI "2 Too"o 96! 'g00°0 Cit-)
sSo"s ‘00°0 96! g00°0 (oTt-)
£19°% Too"o 96! 900°0 (6-)
205°S Too"o ‘96! 900°0 (s-)
B6l"*> Too-o 965°0 900°0 (-)
oL6°S 00° 96S°0 900°0 ce)
sts"s Too"o 965°0 $00°0 (s-)
yye'2 Too"o 96S°0 $00°0 (>)
905°2 Too"o 965°0 " (£-)
gs2°2 Too"o 965°0 £00°O (2-)
¥90°2 Too"o ‘96S°0 200°0 ct)
oT6°T 000°0 96S°0 Too"o (o-)>

AVLS-1 243039¥7 AViIS-1 14309907 wl

S8/> <OR1VWIIST 69 = GON od Z86T O1 %B S96T *3ONVE
662°T = Md 26°2 = SHI NVBH 2ES°T = "U°3"S Bb" bsu2

(¥6205°£)
TU2L0 * 9BTOS*S + = (CT) TGNSD % CCI)TUN - (1)789)730) * 243009V1 +

(20%b6 “3
(CCT)63/CT)AdN99 1130) % T43008V1 + sogsz's = 49/101109

- Tot -

“Tb


-56-

The GNP multiplier in the United States is 2.0 in the first
year; crowding out of the U.S. fiscal shock is virtually complete after
six years, as GNP returns toward its baseline path. The GNP multipliers
in Germany and Japan are much smaller, only 1.3 in the first year. In
Germany, crowding out occurs, although at a slower rate than in the
United States, while in Japan there is virtually no crowding out. In
all three countries prices rise steadily following a fiscal expansion;
the inflationary impact is lowest in Japan.

The spillover effects of the U.S. policy change on foreign
economies are moderately strong, while a foreign fiscal expansion has
much smaller effects on the United States. This is partly a seale
effect -- one percent of U.S. GNP is a larger shock to the world economy
than one percent of German or Japanese GNP. The result also reflects
the greater share of trade in GNP in Germany and Japan, compared with
the United States. Finally, the joint fiscal policy simulation is
similar to the single country simulations, but magnifies the effects
both on output and on prices.

Table A-5 (in Appendix 1) gives more detail for the fiscal
expansion in the United States. In the MCM, an increase in real
government purchases leads directly to an increase in real income in the
United States. Given the assumption of a fixed path for nominal money
supplies, interest rates tend to rise. This rise in U.S. interest rates
leads to an appreciation of the trade-weighted dollar exchange rate.

Furthermore, prices tend to rise relative to the baseline, even with the


CASLN = T)/CHAVITGN + OOT/dX3dN - COOT/THYA) % CALA - T)) % CULNVUON - CCC MadTIN
% CCCOOT/THUN) % CAML = T))-))dxa - COCCHTIVENZT - T) % YAdTIN) % COOT/THYN) % CAMLN - T))-)dxa)
% COCUWSAZT - T) % YadTIN ~ BAdTIN) * COOT/THUN) * CALA - TIIZCCCXIVEN/T - T) x 4adTIND
% CCMRST INU TWEN)-)dxE + COCCUTWENYT - T) x Ma4dTIND * (CMRSTINZATVAN + COOT/THIN) x CAYLN
= T))-))dxa = T) x CaSTINGTWEN + (COOT/THUN) * CAMLN - T)D7MadT INVA IVEN) x ALN - T) = YON

INSMISJANI IIINSOISIY YOd Wilavo JO 1S09 wasn way (woNn)

CIAMLN - TI/COdAVIIGN + OOT/dx3adN
= COOT/THN) % EIAMLN - T)) % COdINVYSN - Tad9NN * (GdINVYON x INILN - T) x DAWLN - T) = adoNN

Sa1avund waINGowd YO Tvildvd 40 1S09 wasn TW3e (adINn)

(adasTIN x COOT/TEN) * CIABLA - TII7CCGdadTIN * (COOT/TEN) * (DABLN
- TIIZCCCOdSSTIN % COOT/TUN) % CIAMLN - T) J-)dXxa - T) - T) % 2 % dSODAGN + (GdadTIN * (OOT/TUN)
% (QAMLI - TIIZCCGdTSTIN * COOT/TEN) % CCIAMLN - T)-))dxa - T) * (dSODAGN - T) = Tadonn

SaT@vUNG YINCOUd HOS W1IdvI 40 1S09 Y3SN WW4Y 40 INANOdWOD ( TadINN)
(aan - TI/CSdAvoa0N

+ OOT/dXddN - (OOT/TUN) * (IAMLN - T)) * ((¥SdGIEN x SSODAGN x (1s69G - 4ETO9G - T) + ESd09aN
x SSODAGN * I£590 + ZSdO93N * SSOIAGN x ZETOIG + TSdOIIN x (SSODAGN - T)) * DAYIN - T) = SdINN

SHUNLONULS YIINGONd YOs TvLIdv9 40 1S09 YasN IW3a (SdonN)

COSdIATAN % CCCOOT/THI) % CIAMLN - T))-)IdXT - COCCCSZ*O ~ SdIVANI/T - T) * SdadTIN) * (OOT/TEN)
% COAMLA - T))-)dxd) % COCESZTMO - SdIVENI/T - T) x Sd34TIN - SdddTIN) * (COOT/TUN) * (IAYLN
= TIIZCCC(SZO - SdIVANIZE - T) % Sd3ITIN) * ((Sd394dTINZ (52°O - Sd1VON))-)IdxE + COEEESZO
- SdIWANI/T ~ TL) x Sd3dTIN) * (CSdASTIN/( G2°O - SdIVAN) + COOT/THN) * (DAMA - T))-1)dxa
- T) * (Sd3dTIN/(92'0 - SdIvan) + (OOT/TEN) * (IAIN - T))/Sd3dTINZ(SZ°0 - Sd1vEN) = »SdOd3nN

(NOLLVIO3NdIO ZSZT) S3AT@VUNG YIINGONd YO4 NOILVIDIdaG IIWONOIA (SdG9IN)

- vl -

“998

"298

"298

“198

“098


-77-

TABLE A-8: UK MONETARY SHOCK

UNITED STATES

Real GNP (% -0.0 0.0 0.0 0.0 0.0 0.0 0.0
Price Level (%). 0.0 0.0 O.1 0.1 O11 0.1 0.2
Int. Rate (ST)(+/-) 0.0 0.0 0.1 0.1 0.1 0.1 0.2
Exch. Rate (FX/US$)(%) -0.6 -0.7 -0.9 -1.0 -1.3 -1.6 72.5
Current Bal. (US$,B)(+/-).. 0.0 #05 O.2 O02 0.3 0.4 0.6
CANADA
Real GNP (%) -0.0 -0.0 -0.0 -0.0 -0.1 -0.1 -O.1 -0.1
Price Level (%).. 0.0 0.0 0.1 0.1 0.1 0.0 0.0 -0.0
Int. Rate (ST)(+/-)... oe 0.0 0.0 0.2 0.1 0.1 0.1 OFL 0.1
Exch. Rate (US$/C$)(%)....- -0.0 -0.0 -0.1 -0.1 -0.0 0.0 0.1 0.1
Current Bal. (US$,B)(+/-).. -0.0 -0.0 -0.0 -0.0 -0.0 -0.0 -0.0 -0.0
GERMANY
Real GNP (%)...-eeeeeereeee 0.0 -0.0 0.0 0.0 0.0 O00 O11 O11
Price Level (%)......-- 0.0 OO. 0.2 0.2 0.1 0.1 0.2 0.2
Int. Rate (ST)(+/-)........ 0.1 #0.0 0.0 OF1 0.1 OFf1 0.1 0.2
Exch. Rate (US$/DM)(%)..... 0.0 -0.0 0.0 0.0 0.0 O.1 O11 0.2
Current Bal. (US$,B)(+/-).. 0.0 0.0 0.2 0.2 O46 O17 1.1 1.6
JAPAN
Real GNP (%) -0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Price Level (%). 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Int. Rate (ST)(+/-)... » 70.0 0.0 0.0 0.0 0.0 00 0.0 0.0
Exch. Rate (US$/Y)(%)...... -0.1 -0.1 -0.0 -0.1 -0.1 -0.1 -0.1 -0.1
Current Bal. (US$,B)(+/-).. -0.1 0.1 0.2 0.2 0.3 0.4 0.7 1.0
UNITED KINGDOM
Real GDP (%) 0.6 -0.9 -1.2 -1.4 -1,.5 71.8 -2.0 -2.4
Price Level (%)....- 70.8 -1.1 -1.5 -2.0 -2.9 -3.9 -5.2 -6.7
Int. Rate (ST)(+/-).. 1.0 10 1.0 1.0 1.0 1.0 1.0 1.0
Exch. Rate (US$/PS)(%). . 3.0 3.6 4.2 5.0 62 7.9 9.9 12.4
Current Bal. (US$,B)(+/-).. -0.1 -0.2 -0.9 -0.9 -0.9 -1.4 -2.4 -3.8

NOTE: Amounts shown are deviations from the baseline path.
(%) = percentage deviation from baseline
(+/-) = absolute deviation from baseline


oss ToT 6ST 2489

is osd
OTT wWoaYvHS?
86 WANGSD
Tst ravaas
06 ZB aso
22t 9Y2Sd
ze 68 Wwas3
4t 9T AQAA’
p24 AINXIVS2
6L INX4VS2
o£ MNJVS2
99 AINHSYS2
29

INHIVS2
at AddIAVSS
$e A94TAVSD

Z AdNdAVS
6 AdJVSD
: 56 wasad
<16é £69 0S <£0S OOS Ist Off ET OST %6 6 SB 48 98 SB T sud
26 96 wad
19 zs WOL7u9
oh 69 JaL7u>
@xg £T 2El L2T 92T S2t 6 OT 2 Ta
6 Err)
9 ASau2
Lz VSNS3Y2
s $342
Ty ‘Tob
OST OOT Tdd
SOT BZ SxXd
S26 916 L406 906 OS 269 169 ToS B05 S6H Z24E 62E BZE ZT ZOT SS anaxd>
ss 1g |OOXd:
sz WYLIddd
<It 6T ‘STdOd>
90T 99
60T 66 VIONWd>
901 <0T OS ANSdD
OTT 60t LOT INSSWd)
2st 2b OSWdd
969 TOS 46> oz BOT OT 98 89 19 ZS 0b BF 9F dNod2
OST Let 92E ZIT SOT OOT 2 T dX3d3
Ott zot wWoad>
Tot ¥a3IdIdd
106 668 TOT Id:
2tt MHdd
TIt <6 dH3d3
26 THHId2
st ANSHIdD
069 965 SEE SGZE S2E IIL OTT GOT TOT OOT 66 95
e 4s 9s St ze tf Of £2 2 6 98 ST I B > 2 d:
86 HLOD
9st se 4e@ se os ze Is
bob bE
gs ae VSNUMND
F343 MND
Tg o£ YSNMND
Is 62 VSNAJMND
Sol 86 9% 61 OND
Ost Ist VOND
Ost Ist 5)
86 ASVSVIND
Ist 66T Lot Tot SVIND
28 IINXL3ND
oe se ‘ON:
Te 2W2
2% 6 68 98 THO
9ST IST 8 8S Lz ANVSLWD
- £9 YaAASWD
9st Ist $8 99 49 $9 65 AASHD
of £9 29 AQNASHD
29 Y30NASHD
£9 4S AGA’
te 09 69 ASHD
9x1 Ist 8 99 69 65 99 AOSHI
6> Y3AIND
2oT 9ST GST Ist +8 08 69 09 OS 66 ASD
09 ASSHD
59 69 SAINSOWD
4or s9 9 AINSOWD
49° 99 SNINSSW3
6Il 9IT 4oT s@ 29 ¢ INSSWD
cod 43A109WD
2 Ob ATOSHD
aS 43709)
826 2 Ib OSH
os SW
fol BET 14119
ee Tol ZsT 3dL19

wa@WNN =NOILvNda | J7EaVIUVA
- 681 -


ANVULHD - AASHD - AOSHD - ASHD - ANVULXD + AASXI + AOSXI + ASDXD = IVEUNID

JONVIVa ‘INnO39¥ ‘INSWUND ¢ Wwaunsa) “oe
9 - INSSXI = INXL3ND
S30Tud 2261 - sisva VIN - S33A1N3S ONY $0009 40 S14Odxa 13N CINKL3ND) “£8
‘Iwas) + 1v@s9 = Tvasoo
SSOIAWES ONY SGO0S NO SONVIVE INaWUND CIvES9D) “ze

ASHO - ASXO = Iveso

S39TANaS NO JONVIVE IN3IBUND (TVESI) “Is

ASHI - ASX = IvE52

SONVIVa aval ‘$0009 (vas2)

S3ONVTva bp ° Sie)

- 02 -



00% * ((¥SWE99)907)7130 = WEIHIdD

SISV@ ‘IWANNY - A3NOW ING TVULNS 9 SOVANIIAd (WEIHIdD) “Lob

(a49 * Gauvd
+ GSO * (20'S - GSUNUD) + GLO * (ob°2T - GiNwed) + Gad * (19°9T - GaNUd)) * TO°O = raysauS

‘SIN3W3YINDIY JANISIY Let | wos "INN033¥ "On wa9 OL “ASnray (Favsaud) “9b

WEI4VS9 * WEID = VSWEI9

(ws) 7X3NOH va Wang 30 SMA TWNLOV (YSWEI9D) “Sb

8/5 :G31VWILS3 6£ = GON $B Z86T OL TD £/6T SONYA
(8°S) 2° = OHY S%8"> = SHIT NV3N S00" = “43'S 666° = 8SYD

(2£20¢°T)
<b x STEZ00°  -
(42029°) (1o298°2) (9£62°99) (8609T"2)
2B x 622600" - TB x 98TS00° - (248991901 x ST6es’ + 819646" = (WEI9)907

(sus + S3NIWUGL30, ) 73NOH ywva Waling9 JO INVA Who - wa | (sua) “bbb

as9 x 180°O + G19 * SZT°O + GOD x 99T°O + GUND + UNIa = Wasa

AINOW NYE TVULN3D JO 3NIVA ‘aaivinaiv> (3a39) “bb

faVS3IYS - GGHLO9 + Gad9ND - SVIND = IWaID + UO

ONVSSIONNG 3H1 40 SWIVID Y3HLO - ALIIN3OI 133HS BoNvIva va WaINaD | (@@H109) “2bb

‘S3LLIMOHLNV



$69°0

<Io°It <20°0
<Ib°It 990°0
<Ib°It 660°0
basgaas 2sT'0
cacaas S9T"O
Facaas 86T°O

dvis-1 143099V1 ovT

$@/> :G31VWIISA SZ = GON od Z286T O1 TD $96T *30NVE
(s°2T) 8° = OHY £29°S = SHT NVBN 626° = ‘Y°a°S 226° = BSYI

(9Z8Ts")
((I)su3) % T430I9V1 + «= ZZTTO*Z = Tad

SUVBA OT ~ SQNO@ VOVNYD 4O “1A09 - 31VY 1S3Y31NI W431-9NO

TH) “6

W3SYD + dH3dd + dHIdN - SYN = SUD

UadVd ANVdWOD JINVNI4 AVd-06 ~ 31VY 1S3YZINI WY31-LYOHS (sua) “£6

SaLva ASJYSINI GNY YOL93S ONIWNVE JLVAIUd “@°III‘D

- 2 -


-31-

The basic specification of the bilateral import-demand
equation used in the model is as follows:
log[XIJV/(PXG, + EIy)] = ag + ayy log(GNP;)
+ apij log(Py + EIy/PXGy + EI)
where
XIJV = value of exports of country i to country j (customs
basis) in billions of U.S. dollars
PXGj = export unit value index of country i expressed in
currency i
EI; = exchange rate index of country i (U.S. dollars per unit
of currency i)

GNP j

real gross national product of country j.
Table 2 shows the estimated income and relative price elasticities for
bilateral imports and exports of the five MCM countries.

The German bilateral import equations are numbers 372-377 in
Appendix 2. In the German and Japanese models, the ROW sector is
divided into other OECD (area "I"), non-oil LDC's ("L"), OPEC ("0"), and
other ("Z"), German imports from the United States and Japan are
estimated using foreign-country exports as the dependent variable;
equations 381 and 382 in Appendix 2 are the quasi-identities which link
to the corresponding German import series. (In fact, the variable MGUV
appears on the left-hand side of both equations 375 and 382. This is

possille because the model is automatically renormalized before

simulation.)


4aSWa + SZ°O * AEWA + (1-)SWa = SW3

cH - Maans NOH (xW3) “OS2

DAWNNGS + WNNGH + “> x (4NDTITA0 = ALWa

T"NidanS ASNOW NI BONVHD (ASHE) “662

00 * (( TW3)907)730 = TWHIda

ava | WONNY - TH NI 39NVHD 3OVINIOUad (twHod3 “8b

o9uLa3 - uNda + G03 = Tha

TW AlddMS A3NOW (THE) “262

awNNGa - ((09NLG3) 73G - (@903)730 + (9003)T30 + (019)730 + (003)130) * » = WANG

SWNVE “4 IV SATSOdIG W1OL NI JONVHD OANNGH) “952

(asoo3 - yua - T) * (e903 + 41q3 + G13 + aaa) = daqa

SNVE TWIDUaHNOD JO SONNA JTYNVOT Tv1OL (430 “Sb

Tst"o
002" +T0°O
00s "9 620°0
002 "Sz 360°0
00s"e =90°0

Avis-1 143039V1

9Z4/T :Q31VWILS3 295 = GON 8 SLOT OL TD £96T 2 39NVE
(VN) 69° = OHY WN = SHT NV3H £000" = “Y°3°S 96° = BSYD
CCT-T)VSNMN/CI)SAINSOW]) % T43099V7 +

() (972) (er)
(2-)Wauda * 220000" + —(T-)VSNMN3/20173 * S95629° - 52000" =  (T-)VSNMN3/2003

SNVe ON iv ‘SiTs0d30 ‘SNTTH31S-NON ‘IN3QTS3U (30 “tbe

82/1 GalVWIISa 2S = GON bo) scet wed. 1 §26t_ + 3ONVY
2>°T = MQ WN = SH7 NV3H 400° sud

(6°T) (tv)
(T-)ITE90 * 456200" - £990 * %56b00° -
(et (9°2) () (st)
Tez * £12200" - IvTZAda * 292600" + Z21%99A03 * 960900" - (T-)10113 * 299900" -

cia a) (2D (6°)
(1-)10174 * £62£00" +  (T-)0d94S43/SAINSOXA * 5EZT6O" +  (T-)0d94S43/SAINSOWS * T9Z9T* +

(Zz) (o's) (9°) (z"2)
Wadd3 * ZSOTOO" + VISY3 x SZ@TOO" - 1843 % SBTS00" - 905990" = (T-0d94S4374193

SNVE n WW Sisodaa ONTTHALS ‘SV3SUA0 (4103) “£62


. (vs) WH-HLUOM 13N CM) “Ole .

MN4VS9 % VSNAMNO = MNO

cys) $391ud "IN3WUND-HLOM 43N (MND) 695

89% VSNOMNSD + VSNAJIMND = VSNAMNS

(VSN) ‘$391Ud "INSWUND-HLYOM M3N TV.LOL (VSNAMNSD) “89

(43 % $)/(VSNAVIIS - ATI + VSNAJIS) + (T-)VSNIMND = VSNYMNO

(WSND ‘WS-WLIdVD - HLYOM 13N (VSNYMNS) 6° 29¢

‘/SNAJMNGS + (T-)VSNAJMND = VSNAIMNO

(VSN) S39Tud INGWIND-HLUOM MBN WIONYNIA (VSNAIMND) “995

VSNAIS - AIID
~ VSNAJIS - SNANVULS + AdNVULWSD - ASNVULNS - AdNVYLXS + ASNVYLXS + YSNALS - VSNAdNSD = SNAJMNGS

(WSN) LY “NNV S391Ud YND-HLYOM 13N WIONWNIG | NI | 3ONVHO CSNAJMNGS) “S9E

HL1V3M GNY SONIAVS J1IVAIUd *3°I'S


-9-

Yq real disposable income

y* foreign real GNP (exogenous)
é rate of real depreciation (exogenous)
p required reserve ratio (exogenous)
Demand

Consumption (equation 1) is modeled using a conventional
life-cycle/permanent income approach, with a distributed lag on
disposable income serving as a proxy for permanent income. The real
interest rate is also a determinant of consumption, The investment
equation (2) is developed along standard neo-classical lines, with the
desired capital stock as a function of both the level of output and the
real user cost,of capital. Net investment is the difference between the
desired and the previous period's capital stocks. (In the full model,
investment is disaggregated into residential and nonresidential
components.)

Imports of final goods and services (equation 4) are a
function of real income and relative prices. (Imports of intermediate
inputs are included in the supply block.) Exports of goods and services
(3) are a function of foreign real income and relative prices, These
equations determine net exports of goods and services in real terms.
The rominal value of net exports is determined by the current account
identity (equation 25). Because home and foreign currency bonds are
assumed to be perfect. substitutes, the capital account of the balance of

payments is a residual given the current account (equation 26).


Tb°'O % SUN + 9T"O *% SUF + 6F°O * SUI + 40°O * SYD = MI4SUIE

AMOHS NOTIYO4 (MIISUI9)

T° ONIN *% IT OMIE * 6F°O2NDT * O° O%HNID = MI4ANIIS

SWIV1D “YOs AM GILHOTIM - NOLLVZITLIN ALIDvdv NOI3YO4 (MI4NI49)

‘T* OxdNSdN % 9T*OxxdNSdl * 65° OxHdNSdS % 60° O%*dNSdD = I4dNDdJS)

SH

803 AG G31HOIIM

‘SISVG dNO

13A317 39Tad NOI3YOS (34dN5dI9 }

Sur * 85°0/bT"O + SUZ * 8S°0/ZT"O + SYD * 85°0/60°0 + SUN * B5°0/SZ°0 = MASUIS)

Bia TiI@ AUNSV3UL JOVUIAV NOTIVOS (MISUID!

(£-)MddNSdSS % (T+ 0OT/dX3N9dS9) = TdNOdd9

JaA71 g0TWd NOTTUOS @31L93dXx3 ( TdNDd49 |

Oboe 28°0 = TT OL 0 = OD HOSA (>
~ FIMAdNIdIS/C 0 - CIMSGNIdID - (TIMIGNSdIS) % (T-)xxLB°O = O STT- = CIWNS * OOT = dX3NSd4)

G3LHOT3M + 31va NOLLVTANI NOI3YOS GaLDadXa ( dX3NDdI9)

(85° 0/T 15«( 5TO%% NO? % ZT" OxxdNOdI * 60° OxxdNDdD x £Z-OxxdNOdN) = MddNOd)
GSLHOIIM - YOLVISIO NOTLa¥OSGY NOTIWOS (MJdNOdIO |

COS*O/T )xx( OT" Oxxdr % ZT" OxKda % 60°OxKdD % £Z°OxKdN) = M4ddd

SAHSI3M 3X14 - YOLVI490 NOILGYOSGY 3OVUIAV NOTIYOS (Mddd9)

OWLMSx ZZ1IOdO * THIMOXXANSXd1 * IWLMOxxANSXdI
PHLMSxx( TAP % ANOXdE) % BWIMOx (139 % ANSXdA) % DWIMOxx( TID * ANDXdI) % NALLMO%ANDXdN = GMAXdS9

($) SLHSI3M JTEVIBVA - S39IYd 1YOdX3 JOVUZAV NOT3UOS COMAXdS9)
MNN + Yar % MNT + 833 % MN + 439 % AMND = GMNID

($) HLWOM 13N NOIZNO4S (OMS |

CSISVUIAV GALHOI3M) SITVIUVA NOTINOS “IIA

- SOT -

*s0s

“Tos,

"00S

"86>

"Lod

“96>

“S6o


OIs'o 295°0 £00°0- (s-)
£56°2 228°0 §00°0 (-)
06°T 902°T tto'o (-)
659°T 2o5°2 s10°0 @-)
Oss*2 1es"s $10°0 a)
T8"0 Leort Tto'o (o-)

ivis-1 243029¥1 ivis-1 143039v7 ov1

S8/> {guiwtisa 59 = BON +b 2e6r ote Lam og6t BONY

(s°%) s5° = OHY £T°T = SHT NV3H 660° =
(Ts650°) (1Te2zT"2) (96260°2)
0 * T9LTOO" + 2B * £42240" + Tox TZ6Z50° - ((1)dx3d3) * 2433099V1 +
(es290"¢) (x8S£0°T)
“OOT * (T-)NINI * ETS6BO" - C€T-1)GA3) % T330I0V1 + «= (T- dH & YAVITGT + 992599°- = HII

S8/> scatyaTisa 69 = GON + 206t ote <b eee JONVa
(o°>) 286°- = OHY = SH1 NV3W 8b 82y" sua,

Cosees"T)
N99 * OBZTIO” + ((I)YNINI) * T43090V1 +

(9202°TT)
(40931730 % £0°O + ((2-JYNdNA * YNAVIIGT - (T-)UNddTa) * 66ZZTe" +
C9TT 266°)
(1-VUNdya % YNAVITGA + T60Z9°- = = UNdSTS

SaoTua 2261 - ‘INSHLS3ANT ‘WIIN3GIS3YNON 3LVAId (YNdSI3) 62ST

S8/> :G31VWIIS3 = Td = $8 2861 OL TO S96T 2 39NVY
(9°79) ££9° = OHY STO" = SHT NaN sto’ = ‘y'a°S 989° = BSuD
0°E)
o7(CT - wwISsda ? 0 *2- = OWNS “ 735200" -
(89£62°2) (19002 "<)
((-)33/(9- )0A9)901 * 6ZTSET’ + SNOIAGT * SBBETO" +
£60S9°T) (s292e"s) (Zose2°T)
CCCT=- 30431901 = $3130 « <s9S980" + ((GA3)901 ? 99130 * Z64T° + e£2zE0" = €(€93)901 + 1130

$39Iud 226T - FUNLTON3AXa | NOTLaNnSNOD | BLVATUd (93) *9ST

30S 1v3¥ 911Sa00

- es -



SOF 962 652 B52 LG2 952 22 BAT Maa

oos <I2 ‘WO1LT83
662 £22 901783
62 «852 ZH183
£62 262 992 Iz Waa
B52 G52 £52 252 Ob2 qua
852 G52 252 062 agua
Zot LT ‘oda
20E £22 1d]
692 Ts2 Sxd3
G26 LI6 206 $06 S06 ISL 269 169 265 80S 6h £45 492 ITZ S6T HST 2ST JF. An9xd3
G92 96T OT <6T Z6T IdMd3
£52 bbz Waad3
a2 94T dod3
992 122 ‘SWd3
Sl2 $92 IONWd43
Tz soz ANoWd3
9L2 GL2 £2 992 INSOWd3
969 989 TOS 46> OOF B42 £42 222 £IZ OST dNOda
242 O42 Toe dasd3
OZ2 98T O9T void]
20E 62 Zz O82 B42 LL2 BST dxad3
942 192 S92 woad3
106 668 992 Idada
982 MH3d3
6L2 dH3d3
Bbz THHId3
SLT dNSHId3
069
96> 622 LL2 LZ 492 Zz Oe ZIZ ToT LET LOT OBT BT AT OLT BOT SIT. TOT d3
£0F bbz 262 68T VSNMN3
46> 06T MNZ
gos TOE VON]
61s stk Ov4N3
Lez INXL3N3
0SZ 6b2 AEH
tse S=W3
osz wasW3
sz 0s2 £W
Bhz2 Loz THI
gsz SIZ eT ANVYINS
gs2 LIZ 9I2 ‘AASHS
912 $12  -AGNASWI
912 £12 AGASH3
gsz IZ LIZ ASW3
geez 22 612 £12 2T2 AOSW3
02 uaAOWa
@f2 HF2 612 BIZ G02 02 6/T ASWR
9x2 8T2 ASOWA

bez Soe O22 OTZ LET ZT  SAINSOWZ

zez ez £2 Lez 122 O9T INSSW3
B6T 96T A093
46T 432 109W3

926 86l L6T 1
T2z g02 OW]
ets 80s 1d113
Its Los 34173
21g OTs soz 0113
TIE 60 bz 90113
862 £be 10173
262 20113

sez eZ 282 9T

sez 82 £82 182 313
292 092 9@13

062 sez LST UNG

062 2982 82 6ST dia
292 G2 (9ZT saa

62 I1W3

062 692 8ST dHa

£92 9ZT dsoy3

zt Ut VSNAII3

lez 19T O9T 113

682 691 8ST dH

TZt 89t 9T AdIa

962 L8t OLL VSNAdIT3

geez 691 LST ‘UNddTI

zet L9T ‘9d4Ia

$0E OLT 69T LIT d3I3
set 29T 99413

g9t L9T O9T 41a

<98T et IT ja

Test ost 19T A393

192 a193

=9z 192 092 AdS93

2g2 aso3

922 was93

YaSHAN NOILYNDA | JTaVINVA
- 26T -


43ASWA + Y339/AL3W = ASN

SIsva dO@ - SluodNI Sdo0 “4 W101 (ASHI)

AY3H + AIBN + ASH + ACSW + ANBH = ALaW

Cs'n $) sisva 100 - SLNOdHI $0009 “37 TW1O1 (ALZW)

$8/> :Q31VWIIST 06 = GON od 206 ote £B 096T =39NVY

60T°2 = Md 120° = SHT NV3N 8TO° = 616° = BSYD
(2112s *%) (ZT25°62) (g92L >)
CCT ABEX/(T~ YAYBHISOT % 6EE22H"  - — ((AFYX)N01I19 x T96HTS” + OOSSSO” = ((ANTHIDOTITIG

s8/> LVWILST 06 = GON 2 2961 ote =b o96t ?3ONVe
Tét’2 = MQ 220° = SH1 NV3N 20° 9g2° = bSYuD
(esoes"2) (25To"9T) (800%9°9)
COT-DA3NX/CT- JANBHISOT * 190229" - — ((A3NK)901)TG * S6TOZ" + Teb6Z0° = ((AN3N)907)730

CATINGGI-TSynb) CS" $) °S'N WOUd SiNOgNT Sa00] x" ‘N CANAW)

g8/> *QRIVHTLSS 06 = GON ob 296 oT, ou £0, 096t =. 3gNYY

00°2 = = SH1 NV3W 8ST"
(2£926°8) (6s80°S)
CCT AarX/(T- JAP3WIS07 % 68BTBZ" - — ((A3PX)901) 130 * B°0 + HBOE9D"- =  ((AraN)907)730

CALLINSGI-IsvNB) C'S" $) NVdVE WOU SINOANI SGO0D "7A (ara)

§8/> ?031VWILS3 > 2861 O1 Sb 096T *3ONVY
626°T = Md 200° = SH7 nv beover = was TSZ" = BsUd
(69TH6°2) (80TT"9T) (6S2oT°Z)
CCT~3A39X/(T~ 193M 907 * 992888" - — ((A39X)901)190 x SZEZ0B" + «6—G6ESTT” = ((A93N)907)730

C ALIINIGI-Isvi

J C°S'N $) VOYNYD WOY4 SLYOdNI SGO09 *y"N (AIS)

29/5, al ANMLisa 2g =

OWN) sGZs° = = SH1 NV3W Seon:
CaT299"¢) (Ty080°T) (Z08ZzZ"T-)
bx 925009" + 2b 258802" + Ib x S/ESTE° -
( £9682") 8646 °S) (6608 ‘T-

)
(1-)433/(T-)110dO * 802E>° +  433/T1I0d0 « £9699" + 806E85°- = BSAVG/109W3/0SZ = ATOOWR

(ALLIN3GI-ISvnd) BNA - ‘SLMOGNT | 710 (A109H3)

¥YFIOSWA + 10b3 - BSAVG/(10S3)130 + 109X3 + 1093 = 109N3

(G@H) 3WNIOA - S1YOdWI 110 (109N3)

= 9 -

“902

"£02

“202

*Toz

“002

"66T

“L6T


QOT * (T - %xx((T-)dNON/dNON)) = dNSHIdN

BLVY IWANNY--dNO NI 3ONVHD JOVIN39N3d ( dNOHIdN)

dNVAGAN = GAN
$39INd 2£6T--3WOINI 31avSOdSIa (GAN)

AdY4AN + AVIIN - 4SLNIN - AION + ANVYLN + ALN - AdNON = AGAN

$391Ud INIYYNI--3WOONI JTAvVSOdSIG (AGAN)

dN/AdTIN = SIIN

$391Ud 2261--SIIYOINSANI WYV4 NI JONVHD (arin)

df x TIN = ALIN

$391Yd LNFMIND--INSWISIANI AYOIN3ANI JLVATYd

CATING

= oT -

“ETd

STL

aca

“OTL

“602


4L3N_- SWIV19 O110414Od W431 9NOT NI_3SNVHD

($80) SIHOT3M G3XI4 - dN9 NOLIYOI 39VYRAV G3LHOTIM

SWIV19 NOIZYOS AG G3LHOI3M - NOTLVZITIIILN ALIDVdVD ZOVAIAV NOIIYNOS
($SN) SYBNSTIYOs NO SHIVID OL1041NOd IWIDNVNIS

SYSNOTIYOS NO SHIVID O11041NOd TWIINYNIS

ALVY 3ONVHOX] L3WYVW OL 3LVY NOISYIANOD LYOdxX3 40

OlLva

(SSN/N3A) ALVA NOISYRANOD LYOdxX3

ALVa 3ONVHOX3 39Va3AV G3LHOT aM

SWIV19 NOT3YO4 AG GALHSI3M - 31VY SONVHOXI
(N3A/$SN)_ ALVA JONVHIX3 LOdS

BLVY JONVHOXS L3NVW OL JLva NOISYFANOD 1YOdWI 30
($'

OrLva

SN/N3A)_3LVA_NOISYSANOD LYOdWT

(N3A/$SN) X30NT 3LVa FONVHIXA LOdS

WOOLS WLIdVI WOIISANd JO NOILVII9Nd30 JO 31va
133HS 3ONVIVG dO@ NO SNOISSIWO GNV SHOwda

SLISOd30 N3A 33Y4 NO STOULNOD YO4 FIGVIUVA
Sitsodaa

AMNNG
W101

SUBNOIZYOI OL-S3TLITIGVIT OND NVE-NON HU3L 1YOHS NI 39NVHD
SUINDIZAOS OL SALLIIIGVIT ONTANVE WY31 LYOHS NE BONVHO

SU3NIT3YOI NO SWIVID OND INV WY3L LYOHS NI

(VSN) 3LVE ATYBLUVND - S39TYd INZAYND - HLYOM LIN NI
BLVY ATUBLUVN® - S3ITYd IN3YND - HLYOM 13N NI
CALIIN3QI dO@) SMOTSLNO J1VAIYd 13N NI

(SN) IN3WNYZAOS 3HL 4O SL3SSV NOIZNO4 13N NI 3ONVHD
ANSWNUZA0S 3HL JO SL3SS¥ NSI3XOd LIN NI 3ONVHD
(ssm) sar Tireyr) OI1031NOd 3LVAIYd WY3L SNOT NI 39NVH

CSN) SBILIVIGVIT OLI041Od WY3L SNOT NI
S3ILIIIGVIT O110414Od WHA SNOT NI

(SSN) SHIV19 01104140d WY3L SNOT NI

SWIVID 0110414Od WY31 SNOT NI

S3ILITIGVIT WY3L SNOT Y3HLO NI

($SN) S3TLIVIEvIT 199a10 Wal SNOT NI
SUINSIFNOS OL SITLIVIGVIT AN3WIS3ANI 193410 NI
asm SuaNOTIUOS NO SWIV1D IN3WIS3ANI 193410 NI

INDTIYOS NO SWIV1D INSWIS3ANI 1934I0 NI 3ONVHD
SLISOd30_IN3WNU3A0S S3TLIYOHINY AYV.L3NOW

(SSN) S1HOI3M_G3XId - dND_NSTIYO4 NI 39NVHD
SUNSOTS 34 43. 13H SLISOd30_GNYW30

$391Ud IN3YYND - FYNLIGNAdXI NOLIdWNSNOD 3LVATYd
€

‘SONY!
BLVATUd - SIN3OISIY AG 013H ADNSYUND
BLVa NO: NOTLVZTILIN ALT way.

|SWNY3ACS NO Sut sazuraoniny ‘AUVL3NOW

AN:
CySN) saotud AN3UUND = 3INVMOTIV NOLIdNNSNOD Wwitey

JITYd IN3YUND — SONY LY NOIL

Wildvd

WNSNOD
$391ud IN3MND - JINVMOTT LLdWNSNOD WiIdv> AWAred

Nana SAGS A@ NOILdWNSNOD 1V.

(L1dVD

$39Iud 2261 - 3YNLIGN3dX3 NOILdWNSNOD J1VAIUd

SMNVE_31VIS TIVWS AG 013H S1ISOd3d 3WIL 40

SYNV@_31VIS WNIG3W AG GTIH S1ISOd30 3WI1 40

SYNVG 31VIS_39YV1 AG O73H S1ISOd3d SWI JO

*YOd + “OV JO WNVE SATLVYSdOOD TWYINSD 3HL AG _O13H SLISOd30 SWIL 40
‘SONVE_31VIS TIVWS Ad G13H S1ISOd30 ONYW30 JO

SWNVE_31VIS WNIG3N AG 013H S1TSOd30 GNVW3d 4O

SYNVE JIVIS 39YV1 AG G13H S1TSOd30 ONVW3d 39

“YO4 + "OV 40 INVE aATLVHadO03 JWYIN3D 3H1 AG O13H S1ISOd30 GNVN3d 4

‘3aVHS:

OL 1VNOI 13S) ANSXdI YO4 NOTLYNOA NI walanvuve
NOLLYND3 pXBONE 3NIVA LINN LYOdX3 S3TMLNNOD IVIYLSNONI WIW-NON NI WWNGIs3y
T=ZZ6T - S3IMLNNOD TWIMLSNGNI WOW-NON ?X30NI_3NIVA JINN 1g0dx3

(XBONT) S3TBINNO9 ‘WIMLSNONT SN-NON NI _1n

IdiNO YO AXOUd

$391Ud INFMND - SWOINT J1IAVSOdSIG G3LVINIIVS
(YSN) S39Td AINRWND - SHON J1GvsodsIa
$391Ud IN3IYUND - 3HOONT a1@vsodSia

S39T8d 2261 - AXOUd

dSI0

3TEVvSO.
BLVATUd - Erecert U34SNVUL
$1d1393Y YS4NVUL IN3WNY3A0S
. ‘$1dI393Y 3WOINT INIWLS3ANT
S1dI323Y_3WOINT INBWISSANI 193NIONI
S1dI3938 SWOINT INSHISIANI 19394810
W101 ~ S39IAN3S JO S1¥Odx3
AVLOL - S39IAY3S Y3H1O 40 S1YOdX3
S3ITAUIS YSHLO 4O S1YOdX3_F1VATYd
$1dI393Y INNOIDY 3DTAY3S IN3WNY3ZACS

svn ua dO@ - S1¥O0dx3 S0009 NYWYI9

W10L

'@_ dO@ - SIIIAW3S GNY SGOOS 4O S1¥OdX3

aa 35h ANZYIND - SISVG VIN - S1YOdx3
jITad IN3YYNI - SISVG VIN - SLYOdxX3

ws $321ad 246T - SISVG VIN - S1YOdxX3
$391Yd 2261 - SISVA VIN - S1LYOdxXa
SLINGOYd WIFIOYL3d JO SLYOdXF

$321Ud 2461 - S1¥OdX3 SOOOS NVWu:
($SN) S1YOdWI SG00S Nvaia9 iol NI *S'N 4O
($SN) SLYOdNI SC00S THD ‘W101 40 33d0 WOUS SLYOdWI TIO 4O

NOILINI430

~ £12 -

39 W101

3YVHS
JaVHS:

1 NOLLWNS3 |

additor
ajditor
Aditar

HLOTLIOr
qia.iar
JaLtar
ajaLiar
oaLt0r

.acor
MddNOI0r
gar

Agr
iveanor
Wi Ic

SINOW3NN


ASNVYLX + AdNVULXA = ANVULXS

S1dT39gU UFISNVUL Wil (ANVULXA) “£52

AINX4VS3 x SINSSX3 = INSOXI

Sa0Tud 2261 - SISVA VIN - SlUOdX3 (INSOXA) “zEz

‘SXd3/A0SX4 + 9X3 = SINSOXI

(WSN) S39Tud 2261 - SISVa VIN - SINSOX]) =" TSZ

AINX4VS3 x SAINSOX3 = AINSOX]

S30Tud INgUUND - SISVE VIN - SLWOdxa (AINSOXA) ‘osz

84/T pguyatisa 09 = GON B SZ6T O1 Tb T96T *39NVE
(vn) 29g" = = SHIT NV3H £20" = “Y'3°S $6666" = 8SYD

(170%0T)
(AOSX3 + ASXA) * ETOOO*T +

(2) (2°2) (a7) ct)
<0 * SZ>T00" - 20% Bb8STO” - 18 * 9%bS00" - 28¢T00° = SAINSOXA

(ALLIN3GI-ISYND) (VSN) S39Ted IN3XWND - SISVG VIN - ‘S1w0dxa (SAINSOXA) “622

ASX3 + ASX = ASSXF

S39IAN3S ‘ONY ‘$0009 40 ‘S10dx3 (AS9X3) “822

AASX3 + AOSX3 = ASX3

WWwiol - ‘SI9TAUIS 4O SLYOdX3 (ASX3) *L22

- 2 -


-13-

price of domestic output in the German model, with an added term to
reflect competitive pressure from abroad. The consumer price index is
simply linked to the absorption deflator.

Finally, this sector of the model also includes the equation
for expected inflation. We assume that inflationary expectations are
based on a 3-year geometrically-declining weighted average of past.
inflation based on the percentage change of the GNP deflator. This
specification was selected for all country models in order to impose
uniformity and regularity on the expectations progress, since a
satisfactory econometric specification of expected inflation is
extremely difficult to define meaningfully, much less to estimate. The
exact specification used is:

(0)

pexp = 100 * 5 877K ((PGNP(K) - PGNP(K-4))/PGNP(K-H) |

=-11 11
= 87
J=0

J

Wages and Employment (Sector IV.B.)

The wage equation in the MCM is in effect the labor supply
curve, although it can also be thought of as resulting from
institutional factors (such as unions) which restrict the movement of
real wages. The econometric specification is a Phillips curve in the

real wage:


(1-).19309N + 743G9N = 1@3G9N

41930 IN3HNU3AOS (18309N) “£22

ALN - ASSN + AION + ANION + ANVULN + ASN = 4309N

$391Ud LNIMYND --(1VI01 ONY 3LV1S G34) LI9T490 ANSWNYIAOD (439G9N) *Z22Z

ASVGLN + JAIN * 31LVeIN = ALN

CNOLLVNOA LATHS) 3AN3ATY INSWNY3AO0D (ALN) “TZ

(1901 ONY 3LVLS G34) SASVHOUNd LNSWNY3AOD (AN) = *0ZZ

CASNVELXN % SNVELEN) - = Aus9N

‘SYINSIIYOI OL SYBISNVYL LNIWNYSAOS (AYIIN) =“ 6TL

- OT -


26%°S0T- 6t0°O <65°0 ?HNS
WN VN 199" 1T00°0 9IL*> Tto"o (Z-)
YN YN T9>"s 100°0 9IL"> 220°0 (9-)
YN vN T9b"s 200°0 9TL'> ££0°0 (s-)
b33: 384 ex2°l- T9>°s 200°0 9IL"> +40°O (>)
se" 99> bI- = T9H" ES <00°0O 9TL*> g50°0 (z-)
exe" 669°T2- = 196" <00°O 9IL*> 990°0O (2-3
rse"s 226°82-  T96"E 00°0 9IL'> 940°0 C1-)
228°s 99T9E- = 19S 00°0 9IL*> 280°0 (0o-)

ivis-1 £43099V1 Avis-1 243039V1 AViS-1 1430995V7 owl

S@/> ‘G3LVWILSI Gb = GON TB £86T OL ” pect. ao

(2) 2Ue°- = ZOHY (LT) Z2°- = OHY $0°952E = SHT NVBH 259°6TS = “Y°2'S
( 1062") :
ITsZa x 9GE°E24Z - (OOT * (T-T)NINT) * £43099V1_ + CC T- Id 7 T-IMNG) % 243099V1 +
(86TS2°T)
COCT-1)d?-/7C1-1AGAC 130) % TS9OIOVT + = ((E-DAd WT -* 2BO"O - (2-PUdsIC) * G6STSZ” +
(92906°2) (96850°2)

(02-)ude x 2B0°O - (T-dudsdIC) * 9LbL25" + (T-)udWr * 280°O + GZ°STST- = wddIr
S39IMd 2261 - INGHISZANT_ wIINaGIS3Y (addr)
000° >269T- 00s" ?WNS
hal nN 652 990°0 (r-)
vN - xg" 3 960°0 (2-)
O6s°T. | Doo: 8595- 969°2 060°0 a)
06E°T 000° 9TETT-825°T 6%0°0 (o-)
AVIS-1 | 243099¥7 AVis-1 143099V1 evi

S8/> -O31VWILSI 9H = >® 2861 OL 2D TZ6T 2 39NVE

(1'%) TSS" = OHY 20°689% = SH1 NV3H Be 992 = ‘w3S 146" = BSYD

g62zS°1)
(nor tad « éooz" i +
(99920°2)
ITs2a * TS2°289 - = (CC T- TUNING) x Z490990V1T + = (((T-T)dNOF)190) * T43090V1 +
(966£°TT) (ess05°2)

(C(2-)YNEWE % 9OT"O - (T-JUNdSIC) % 659282" + = (T-)UNdNT x 9OT"O + BL°THTT = YNdAIC

saoTud 2261 - IN3WLS3ANI TWILINSGIS3YNON SLVAIUd (UNddIC)

87> :031VHIIS3 SS = GON ob Ze6T O8 2b 9 2et_ 339NVa
2oL"T = MQ S6°OT = SHT NV3N ITO" = ‘43'S bsud

09ST" T)
CootsTar + 1907 x £26882"

(Z££280°2) (9%0E"6T) (60ZT89")
(OAC )901 * £SZ452T" + ((T-)9F)901 * 6£zze8" + <060bT'- = (90907

S391ud 2261 - 3UALIGNSGX NOTLGANSNOD JLVATU (90)

“TIS

“ots

"60S

BHWOINI 3JTEVSOdSIO ONY SNIGN3dS IILS3NON “V-I'r

301s ‘W3Y8 IJLLSSWOG §*13G0WN 3S3NVdvr

- 401 -


air + twr = 2wi"

NVdve 30 ya 3HL 30 31va ANNOISIG WIIDId40 (aur) *809

gar + ynor = TW

TH - AlddMS A3NOW (THT) = °209

air + gar = Lar

"909

S875 :Q31VWIIS3  S9 = SON 2b £86T OL ee ene! *3ONYY

9z8°T = Md 610° = SH1 NV3N SIO" = “Y°3°S
Ceyeee"2) (o2ob"s)
CCT- 3881901 * 980T90" +  (SUF)I901 * 892690" -
( 9029S") (222880°) (o<T98°2)
CCT- 20187 1907 % §20920" - (G1YTI901 * SLhH00" + = (CdP/AdNOT)901)7390 x TS9s9s" +
(6Z6Il*T) (£o6l9°2) (28662°<) (x995>°2) -
Bb x S82500" + 2b 9T6TIO" + Tb x 655T0" - $50690° = ((df7dir)907)130

SINSGISIY AG G13H S1ISOd30 3WIL (Gir) “509

S8/> 31VWIIS3 — $9 = GON 2B S86T OL eb 2267 +agNvY

(8°29) $6" = OMY 6TO"OT = SHI NVA £20" = “Y3"S = 8SuD
(Z69T"2) (629°T)
(SUr)907 * OF8590° - (df/AdNOFISOT * SLT6Z>" +
(SeeTs"6) gZgTs"s) (92zts"s) (£2982°T)
sb x s99590° - zd x ££2220° - TB * 652610" - <s8T0b°S = (df /G0r }901

SIN3QIS3U A@ 013H S1ISOd30 ONWW3a (oar) “909

58/5 {OaLywrisa 69 2b x06 ot 2b 29GT JONVY
(8°22) 956° = OHY = SHT NvaM 220° = cas sud
9995") (60688°2)
(sur yso7 x Soeeto- - (df /AdNSE 1907 seoees: +
(T¥e2°0%) (£962°2) (s295" 02) (eos) J
<b * 426561" - 2B x Z22862T° - TD x $SSebT"  - SS2°T = (dt78Ndr 901

B1VATYd - ‘SINIGTS3U ey aan KONTWIND Qanar “£09

SILVSIUIOV AYVLINOW

LD WIVW WWIDNWNIS ITLS3WOO “III'S

- S2T -


Put

Pai

RF

RR

TR

UC

~8-

imports of intermediate inputs
price of domestic absorption
price of foreign absorption

domestic inflation rate (absorption deflator)

expected domestic inflation rate (absorption

def lator )

foreign expected inflation rate (absorption
deflator)

price of final imports

price of intermediate imports
price of domestic output

gross output

real long-term interest rate
free reserves of banks
required reserves of banks
corporate tax rate

nominal government tax revenue
nominal government transfers
real user cost of capital
nominal wage rate

real exports of goods and sources

expected long-run real exchange rate

real gross national product

(exogenous )

(exogenous)

(exogenous )

(exogenous )

(exogenous )
(exogenous )

(exogenous )

(exogenous )


(49822"2)
3WIL * LTZ868°

+

yusr + war7OATaisr + warvaldiIr + Vaisr = dsr

SUSNSTIUOd O1 SSLLTTIGVIT OT1041¥0d WIONWNIS (1dr)

uzaisr + war * JALST - GIdLI1F = GdI4r

(°S'°N $) SB3INIIFAOI NO SHIVTID O11041NOd IWIINVNIA (Gi
vane + JGLSr + Yar/OId11F = dd4r

SU3NOTHUOd NO SHIVID OT10410d TWIINVNIA (

rd

gar + avauasr + aov4Nr = GLOVANC

(°s'N $) Fav WA INI ‘N09 HL jo ) S1assv NOTSUO4 13N 40 3O01S CaLsy: ANC)

g8/> {O3VWIIS3 26 = GON 2b eer ot 2 o36t ?JONVE
(8°>) £S>°- = OHY TOO SH1 NV3H SZ0° = “2s osu

(9496079)
(T-)00ov4Nr % (aLvaNasr 3G x Z2TTs0z" = (aAr)qa0

(°S°N $) SLASSV NOIFYO4 13N JO YOOLS 3H1 NO ANSWLSNFAY NOILYNIVA (UAC)

(T-)a9v4NF + %/G9V4INOF = G5'74NT

$) ANJWNUIAOS 3H 4O SL3SSV NOIFYOI 13N 40. OOLS (COVANT)

(1-)9V4NC + %/9V4NOP = 9Y4NC

ANSWNUIA0S JH1 JO S13SSV NOTIUOS 13N 40 NO01S (OVINF)

uar % Ov4NOr = aov4Nar

AN3WNYFAOS 3H JO SLISSV NOIFZWO 13N NI JONVHD

8/> 2Q31VNIISA 62 = BON 2b O86T OL 20, a ap

626" T= MG 409° = SHT NV3N ZOT*L = “8°3a°S
BHEb°b)
(T-)a9v4Nr x Sozeo- tT -
(6Zs92"S) (S90TO"S)
Caar - COM8ar + 0 fs- = FIWNS * SZ°O) x G*T2GOE - H28L°S>- = aovINGr

C°S'N $) IN3WNYZACS 3H1 40 SL3SSV NOIFYO4 13N NI JONVHD Casvanar)

SINSHAVG | dO 39NVIVG ONY NOLINSAURINI TWIDISIO “IAS

~ 6&1 -

“289

“299

“T1989

“089

“6L9

"829

“LL9


-38-

where RF is free reserves, NDD is demand deposits net of required
reserves, RS is the short-term rate, and RD is the discount rate. The
free reserves equation for Germany (435, Appendix 2) is normalized on
the short-term intérest rate and is estimated in first difference form.
The basic equation, however, is the same as that given above.
Thisrespecification, which was also used for Japan and the United
States, gives more plausible parameter estimates than the original form.
This sector of the German model also has an equation for currency held
by banks (343), which isa component of total reserves.

The short-term interest rate is determined in the money market.
Given the derived demand for the monetary base, the central bank balance
sheet identity (equation 442 ror Germany) 18 "the iarket’ equiltbri um.
condition, and the interest rate clears the market. The German model is
a variation on the asic structure, ‘since central bank money (GCBM) is
assumed to be exogenous, and the central bank balandé sheet simply
determines the change in position (GOTHBB) needed to.support the target.

The tedqie deposit rate,.and. other short-term interest rates are
linked to the treasury bill rate with bridge equations. Equatioris 436
and 437 in Appendix 2 give examples for Germany. This procedure is not
quite consistent with our theory, since we do not model both sides of
the market in these assets. However, the disaggregation of money demand
into its components seems to be a more satisfactory approach from the
empirical standpoint than estimating an aggregate equation.

Given the short-term interest rate, the modeling of the other
interest rates reflects the assumption that arbitrage ensures that
expected holding period yields are equal across assets. (This follows

from our assumption that short and long-term bonds are perfect


(vs) saorud 226T - sIsva VIN - SLUOdx3 ( INSSX3)
SXd9/( AASXD + AOSXD) + 9XI = SNINSOXI

(WSN) ‘$39Tud 2261 - ‘SISva VIN - SLW0dX3_ (SNINSSXI)

SAINSSXI * AINX4VSI = AINSSX

(VS) S$39IYd IN38UND - SISVG VIN - ‘Siuodxa CAINSSX9)

AASXI + AOSXI + ASXI = SAINSSXI

(SND ‘S3oTud ‘IN3WND - SISVG VIN - Siuouxa CSAINS9X9)
UBAASXD + AGNASXD + AGASXI = AASXI
S1dI3D3Y SWOINT IN3WIS3ANI ( AASXI)

- 61 -

“eZ

“OL


819°O (s-)
066°0 og (2-)
060°2 6%2'0 (t-)
Ost't 902°0 (o-)

4ivis-1 143099V7 ovT

79/2 :Q31VWILSA =—9E = $B 626T OL TD etl ?39NVY
(VN) 90TS* = ZOHY (VN) £2£° = OHY WN = SHIT NV3H 90T" = “u°a"S bsu2

ce") 10° 2)
<b * 842950" - 2B * retes0" +
(yele")
TD x TS08TO" - CC CCLDIR3 * CLIANOXdAI/CIIISC * CI)IdMdl 901) * T43099V7 +
(t*tot)

CINSOHT + 94IP - OF ~ dNOT)SOT x T + £2492°2T- = = (C133 % ANSXd3)/AC3XISO1

“26g

08'"0 wns
1o6°0 29T°O (s-)
292°T 2o2°0 (2-)
T9T*2 T2°0 ct)
L£9°0 esT°O (o-)

4V1S-1 143099¥1 ol

2872 Ser ited 9% _= GON 2: 6260 Sty Ly Teet_ ?3ONVa
(VN) 9582° = ZOHY (YN) 9922" = = SH NV3W bsu2
CCCCLIIID % CLIANSXdI)/CIVISC % CI)IdMdl 901) % TI309SVT +

(2's21)
CINSSWr + 94IF - 9f - dNOFISOT * T + 6S82°TT- = (C139 * ANSXdI)/ACIXISOT

(°S°N $) N¥d¥P OL SLYOdXI SGOOI NVIGVNVD CAPOX) “TS

4ivis-1 143099V7

29/5 «:Q3LVWILS3 2 = GON 8 OB6T OL TB S/6T ?39NVE
(VN) 66° = OHY WN = SHIT NW3H ZTO" = “Y°d"S S6° = BSYD

(92°0T) (1e*0t) (s9"%)
sb x 9T8ZZ2T° - 28% ZOBZET" - TB * 266450" +
(80°8)
CANOF1901 + CCCT-T)df/C1-1)130/( 1-122 110d0 901) * T43039V1 + = Tseb@"6- = = (10901907

(QGH) SHNIOA - NOILdNNSNOD 110 (1097) = *0oS

$0009 JO SLUOdWI ‘V°II'r

ANNOIIV INSUWND “IT'

- <It-


-19-

The appreciation lowers import prices, again raising the real stock of
money, and the LM schedule shifts rightward.

Investment is lower at the higher real interest rate, and is
also reduced due to the fall in income. As a result the capital stock,
and the level of full employment output, are lower than in the initial

equilibrium.

Exchange Rate Depreciation

Because the exchange rate is an endogenous variable in this
model, we assume that the long-run equilibrium real exchange rate, which
is exogenous, undergoes a one-time increase which is immediately
transmitted to the nominal exchange rate. This results in a rise in the
exchange rate E (a depreciation of the home currency).

An exogenously-induced depreciation affects several sectors of
the economy simultaneously. The depreciation raises the cost of
imported intermediate inputs, which tends to reduce aggregate supply.

At the same time, the depreciation also increases aggregate demand
because of the switch in expenditure from foreign to domestic goods.

With the monetary base exogenous, an increase in the price
level. produces a reduction in the real stock of money that leads to an
increase in domestic interest rates. Since both the IS and LM curves
shift; upward following a home currency depreciation, the impact effect

of the depreciation on real output is ambiguous. Whether income rises


i*

-15a-

Is

Figure 1
Fiscal Expansion


5-

Table 1. Simplified MCM Country Model

Demand

(1) c = c(R, A(L)Yq) consumption

(2) I = I(K.y, AUC, AY) investment.

(3) Xgs = x(y*, P/EP*) real exports of goods and
services

(4) Mgs = M(Y, P/EP*) real imports of goods and
services

(5) Yo=C+1I+G+ Xgy - Mgg goods market equilibrium

(6) Yq = Y + (TR-T)/P real disposable income

Money market

(7) M/P = Mg(Y, ig) money demand

(8) RF = RF(M, ig, ig) bank demand for free
reserves

(9) RR = pM required reserves

(10) BU = RR + RF unborrowed monetary base
(assuming no currency
holdings)

(11) ig = C(L) ig term structure equation

(12) R= i, - pe real long-term interest rate

Supp:y

(13) Q = F(K, L, My) production function

(14) Y= Q~ (Pmi/Pq) My definition of real GNP


7701109 - (1-)10119 = 10119

SH3N9IIZNOd OL SITLIVIGVIT 199a10 WY3L-9NOT 4O MIOLS (10119) *62T

7901109 - (1-)90119 = 20119

‘SUINSTIYOS NO SWIV19 193YIG WY31-9NO1 JO NOLS (90119) “sZt

saliIvievri GNY SWIV12

LDRIVH TWIONYNTS 1

-t-


26h 6b 985 9v4Nd9
98> 28> 18h 101109
98> 08 6Lb 301109

o109

6b 26> WASVIOD
Slo NAVIES

9£% YNAVI3CS

992 6Ss VSNIGI09

62> 925 225 dgg9,

Os 92> saas

9% Sob Tob 6b 82h 92h aaa
SIZ IE

98> 02> Wwawnsa

iv Obb bob gunaa

Sob 62> 12h yn3o

868 268 224 689 895 9b 26E LEE na

99> 59H BLE ILE 1039

2492 SE Obf VSNAVIIO

Lob Sob vswa29

b> Sob 2bb wa29

St bbb wa39

OE LE ToS OFF IEE 29

ray alive

LI SST 9ST GA3
geez <2 LT ANVULX3

esz 222 922 AASXI
922 bez AQNASX3
922 £22

gsz
gesz Ist 622 422 222
SOE SEZ HEZ G22 B22 IZ O12 A9x3
2 O£2 622 LZBT IZT SAINSOX]

“£e2 282 O9T INSOX3
TI2 O12 902 4109x3
- 902 L6T O9xX3
112 2439x3
sz 112
602 802 AL3X3,
<2e X13
£2e X1M3
£2E ‘9X1M3
£2E XLM3
ze UM
ezE ‘UHLMa
ezE OWLM3
ezE CWLM3
eze ‘OWIM3
92s OWLM3
+ 982 O82 692 992 492 Ma
sez 082 1492 92 £12 9LT SST Nn3
62 8ST 4on3
262 «ZST yNona
set 22T 22T Ala
262 262 LLT DAULI
62 LAT ABLE
sel 94T 22T ANVUL
64T BLT A0udL3
z2et LZT AgL3
O42 %8I 28T BZ ZT availa
G2 She d3d13
SS2 92 Gb2 22 ai3
Lot 10S3

222 Of2 AINXAVS3
122 022 AINHAYS3

2et set  AS4TdVS3

S8T AvI44VS3
eet MNGSvS3

99T AQAVS3

ETE 20 L452 GSZ 52 fo2 Tye IST visaa

£16 569 69 £69 0S £05 00S 52 £52 262 Iz ‘sua
Sbz PE

- set YaEHNN NOILYNda | JTavINVA


9/43089 + (T-)4GHNID = 4GWNID

$39Iud INRWUND - - "1191430 ANSHNYIA0S G3LVINWND (40NN39) “92

ANVULD + AIILD - ALD - ASSID + AND = 439099

(aesd) ‘SIsva | VIN - LI9I430° INSWNY3AOS (43099) “Sz


-62-

directly affected by the level of interest rates. As a result, a rise
in home interest rates tends to choke off real domestic spending and
leads to an appreciation of the domestic currency. This appreciaton in
turn affects the traded goods sector.

As can be seen from the table, the rise in U.S. interest
rates leads to lower real income throughout the simulation. Real income
falls because both investment and consumption are depressed. The
appreciation of the dollar reduces exports, but initially reduces the
value of imports (due to J-curve effects), which leads to a slight
improvement in the U.S. current account. The decline in aggregate
demand and the appreciation of the dollar combine to produce a decline
ir. U.S. prices throughout the simulation.

The effects of the U.S. contraction on foreign countries vary
by country. Canada, for example tends to, mirror the United States
because Canada is assumed to tie its real short-term interest rate to
the U.S. rate. Initially, Canada raises its nominal short-term rate by
100 basis points to match the rise in the U.S. rate. After a year or
two, however, the difference in inflation rates causes the Canadian
nominal interest rate to fall somewhat. The other three MCM countries,
on the other hand, respond similarly to one another. The dépreciation
of their currencies against the dollar brought about by the rise in U.S.
interest rates tends to stimulate their net exports and therefore raises
real income. By the end of the simulation Japanese real GNP has grown

by more, in percentage terms, than the fall in U.S. real GNP, due in


ZLTSST* Oxx( 139
% ANOXdI) % 268902" Oxx(T3I * ANSXdA) * GLETSZ“Oxx( TEP % ANSXdE) % Z5S96E"OxXXANSXGN = ML4IXdd9

SIHOT3M 30vaL aaxrd Ag *GIM - INVA | Inn ‘Tuoaxa | NOTSUOS (migxds9)

Th OxKYSD % OT OxK(HIT/HID) % 6F°OMR(UIT/ID) % 40° Ox*( YII/U39) = MIdUID

SHIVI9 NOTIVOd AG GZLNOTIM — JLVA JONVHOXA (MO4USD)

(85 °0/£2 "0 )exXAGNON *
(89° O/T "0 xe( ADNIT * WIE) * (8S°O/ ZT°O)xx( ADNDD % HII) * (85°0/60°0 dx AdNID * 43D) = 14AdNIID

SINOI3M 3QVUL G3XI4 A@ G31NOI3M - GND “YO TWNIWON (14AdNOd9)

(89° 0/E2 "0 }edNON
% (8S°0/5T"O Dex GNOF % YIM) x (85°O/Z2T"O)xx( AND % BIT) % (85°0/60°O xex( dNDD x YI) = MLddNOID

TSIHOT3M JOVUL G3XId A@ GALHOTIM - dNO NOTZYOs W3Y (ML4dNII9)

62°O * SUN + 20°O * SUF + 19°O x SUF + £0°O * SUD = M14SYI9

TSavI1 “YOs A@ “GIM - 3lva 1S3USINT WU3L-ONOT NOTIUOS (H14SUID)

- 901 -

“20S

*905

“SOS


-2y-

simultaneity were rejected as impractical for a project of this scale.
Both estimation and simulation of the MCM are done using the TROLL
statistical package 6 (An important feature of TROLL is that it uses
the Newton-Raphson solution algorithm, which does not require equations
to be normalized on a single endogenous variable.) Our version cf TROLL
has been modified to generate regression test statistics and diagnostics
similar to those in the GIVE package (Hendry, Morgan, and Srba (1984) ).
In specifying the functional form for estimated equations we
relied on three types of evaluation criteria. These were tests for data
coherency (goodness of fit, absence of residual autocorrelation and
heteroskedasticity), parameter constancy (stability across time
periods), and consistency with theory. This last category included not
only the usual restrictions on signs and sums of coefficients, but also
a concern for the dynamic properties of the completed model. In some
cases these criteria led us to do considerable experimentation with the
functional form and to make compromises with both theoretical and

econometric norms.

Domestic Spending and Disposable Income (Sector I.A.)
The first equation in each of the country models is the
consumption function. The consumption equations are based on the

permanent income (or life cycle) theory, and have two main explanatory

6center for Computational Research in Economics and Management Science,
Massachusetts Institute of Technology, Cambridge, Massachusetts.


VI4d3 * GV¥S33 = AgyS33

AS4IAVS3/d3 * 99413 + ALZ - ANVULR + VSNAS3 = 43093

VIN - 1191430 IN3WNU3A09 ( 43093)

-%-



war7aowar = War

$/NBA - 3LVE NOTSU3ANOD - TuodnT (ear)

warvasxar = 9x3r

$/NBA - ALYY NOISU3ANOD 18Odx3 (9x3F)

<200°0 * Iar = yar

(NaA7s) - XB0NT Alva 3ONVHOXE ods (Zar)

GS" OxKYar x GZ‘ Oxx( UIS/UIF) % LT*Oxe( UIa/UTC) = MINI

SWIV1D NOIZNO4 AG G3LHOISM - 3uva BONVHOXa (M348a0)

(S9°O/T )xx( 12" Oxx( UFOS WIC) % ZT" Ome UII/UIC) * 60° Oxx( Y39/U3C) x £Z°OxKYC) = -MIYIr

ALLINGGI - 31Ve JONVHOXA 3OVUIAY GZLHOTIM (Yar)

S8/> :Q31VWIISI $8 = GON 1d S067 OL TB T96T_ t39NVa
(£°9) 995° = OHY 2SE°T = SHIT NVBH £0°2 = “Y'a'S sua

(1965°L)
Tlold x 6STL*4T +
Cesese (STS£IT") ET8SS")
Toszd * 68229 + — COCSHSP7ASHE 7OL9VANC) % T9BZEB" - —CANSXdr7ANSXdN - I3C) « secee" 9 -

(v6sS°T) (8b6St"5)
£0990° ) % LVOTSE + ((SHAC/ADWT)/OLOVANC) * 6SEBTT -

(92220°T) (96459 °2)
(ANaxdr/ANSXdN - I3C) x ZESS°OT + HOb8H°S = ISIGNOIT

ANNOISIO 3ONVHIXI GYVMO4 H.LNOW 3aaHL (Israuosr)

"929

72)

“oL9

7a)

7a)

“Ly

‘SAIHSNOTLV134 BLVa JONVHOX3 “D°A‘C

- gst -


-12-

This prototype model suppresses some important details in the
modeling of the supply side in the full MCM. Here we assume that
capital is always fully employed, while in the MCM it is assumed that
capital is employed at the economy-wide utilization rate, equal to the
ratio of actual to potential output. This latter approach recognizes
the empirically important fact that capital is not always fully
utilized, while it avoids the difficult problem of modeling the decision
to take capital out of use.

The full MCM also distinguishes between labor hours and
employment. Again, the difference is empirically important in
estimating the production function. However, we do not explicitly model
the firm's choice between hiring new workers and paying overtime, and
instead we simply link employment to hours worked. The labor force is
also endogenous in the full model. And finally, the full model
distinguishes between the price of exports and the price of domest:ic
output for domestic consumption. Firms are assumed to be able to
price-discriminate between the home and foreign markets, so that the
price of exports can differ from the price of domestic output sold at

home.

Exchange Rate
In the prototype model, and in the full MCM, we assume ‘hat
bonds denominated in home and foreign currencies are perfect substitutes.

That is, we assume agents are risk-neutral, so there is no risk premium


00 * ((dN93)907)730 = dNOHId3

aLva Wwoeny — aN | NI 3ONVHO BOVIN3IY3d ( dNDHId3)

d3/(AV3L3 + AGA) = GAZ

(S39T&d 2261) - AXOUd SHOONT aVavsodsia (GA3)

AGASVS] * VSNAGAZ = AGAR

s3oTud ‘INRWUND — - ‘xOUd 3HOONT a7avsodsra (Aga)

ANVULA + ALZ - AVIO9 - VSNAdG93 = VSNAGAZ

(WSN) S39IUd LNFWUND - AXOUd 3HOONT aTaVSOdSIG ( VSNAGAR)

ALW34a - SAINSOW3 - SAINSSX3 + VSNASZ + YSNAII3 + AdT4VS3/AdI3 + VSNADI = YSNAdO93

ANSWLSIANI YOINBANT ‘S3NIWN3L30 - (VSN) ‘aaaoa C¥SNATIS)

AddTAVS3/d3 % d4I3 = VSNAdSTI

Css) $39Idd ‘INRWUND - ‘INWISANI ‘a3xr4 ‘BAVATUa (WSNAddT3)

= 0b -

“SLT

“oT

74 9

“alt

“IT


$39Iud 226T - SLYOdX3 ‘$0009 NYWI39 | W101 | (8x9) 065

(839/AL9X)901 = (A9X91901

SISVE dOd - SLYOdXI SGOOD NVWHUID WAO0L (ASKS) “68t

ANSX + AUSX + APSX + AIX + AIX = ALIX

C S'N $) SISVG 10d - S1YOdX3 SGOOS NYWY3S W101 (AISX) "SBE

228°0 shins
216°0 990°0 (1-3
ye>°IT 2T8°0 (o-)

ivis-1 143099V1 wT

S8/> ways] 06 od 286T OL 5 ooer ?3ONVa
6£6°T = = SH1 van 920° = was esa
(TOZOT*2) (£220T" 9) (2zs2t"s) (9002T"s)
fb x blbeb0" - 2b * 9TEb60" - TD x SZETLO° - ((I)AOPH) * T43030V7 + 825650" = APOX

CALIINIGI-ISvND) ("SN $) NY¥dWF OL SLYOdX3 SOON NVWURS (APSX) “es

ot0'T Shins
e20"s Tet"o (t-)
990°ST 618'0 (o-)

AViS-1 143039V1 Siv7

?Q31VWILS3

58/5 68 = GON 8 2861 O1 2B 096T *39NVE
(£°2) Sez" = Z0OHY (9°2) 222° = OHY ZLOB” = SHIT aM SO" = "Y'3°S 866° = BSD
(92265°2) (16S89°2) ( £8090")
sb x ZeTes0" - 2B SOBzZs0" - Th x Gezs50° -
(2T0Z"T) (19062°9) ( 982402")
Tella * GS0Z80° + Ts22d * 6T86ZE* + (((I)A93NISO1) x T43099V7 + TS9TTO’- = (A39X)907

CALTINIQI-ISvND) (°S°N $) “NM BHL OL SLYOdXI SO009 NYWUI9 (A38x) “98E

$0009 4O S1YOdx3 “S°II'S

- se -


~29-

In the United States and Germany government interest Payments
are modeled separately. The German transfer equations are numbers 358
and 359. The German transfers equation omits the term in the population
and price level; the interest Payments equation uses the government debt
held by the public multiplied by an average interest rate as an
explanatory variable.

The aggregate tax equation for Germany (360) regresses the
share of taxes in national income on the corporate and personal income
tax rates (GTRYC and GTRY). This specification is also used for Japan
and the United States. Tax revenue in Canada is disaggregated into
direct and indirect receipts. In the U.K. model, taxes for expenditures
(VAT), import duties, and all other taxes are broken out. The U.K.”
model, like the others, uses nominal GNP and personal and corporate tax

rates to explain nominal government revenues.

Private Savings and Wealth (Section I.C.)

This sector contains the identities which define private
wealth. Private wealth is divided into financial net worth (equations
365 and 366), which is assumed to consist of assets fixed in nominal

terms, and real capital (equation 367), which is fixed in real terms.

Current Account (Sector II.)

This sector of the model contains the equations explaining
merchandise trade, trade in services, including investment income flows,
and external transfers. The current account sector of the U.S. model
differs substantially from the other four country models because it is

based on a more detailed model of the U.S. current account developed at


(CMAVIIGA + OOT/dxX3d3 - (OOOT/ZHTH3) * EANLZ - T)) % CHLNVESR - T) = Yond

AN3HLS3ANI “IWILN3GISIY YOd Witeva 40 1s09 | wasn (ina)

(YN34113 * (OOT/TH3) * (IAMLA - 1))/( CYN34ITS
% COOT/THS) * CIAMLI ~ TIIZC CCUN3SINZ * COOT/TH3) *% (DANLA - T))-)dxd - T) - T) * 2 = d30933

AN3WLS3ANI IWILN3GIS3Y NON 4O NOILVI93¥d30 DIWONOI3 (d30933)

COAML3
~ T)/CSNAVD303 + OOT/dXx3d3 - (OOT/ TH3) * (IAULZ ~ T)) % CUNINVEDS - d30933 * JAMLE - T) = YNON:

‘IN3HLSJANI WIIN3GIS3U-| ‘NON 40d qwitavo JO 1S09 43SN (YNINI)

g2°O * IIZ + (1T-)IINS = IDK

ANIWLSIANI AYOIN3ANI 40 9901S (IIN3)

dua + UNdxa =

3018 WAIdvd JLVATYd SSOUD (da)

S° 0x (>/YAVIIGS - T) % /dHIa + (>/UAVIIGA - T) % (T-)dH¥a = dH
QNISNOH - ¥OOLS WLIdvd 3LVATUd SSOUD (Ha)

S°Oxx(/ YNAVIIGS - T) * /YNdSIS + (>/YNAVIIGS - T) % (T-)YNdYa = UNG
AWIINaQTS3U-NON - Dols Wwilava BLVATUd SSOWD CUNENa)

¥Y3NDI + (( LOddN9I/dN93)901)13G = ((NI3)901)730

3LVY NOILVZITILN ALIOVdvo (NI3)

"£62

“262

“Tez

“682

“£82

SWIOLS WiIdVD WY GNY ALIQvVdvD *2

-99-


((sd3411n

* (CCOOTS TUN) % CIAULN - T))-))dxX3 - CCC ESAIVEN/T - T) * Sd34I1N) * (OOT/TUN) * (IABLN -

T))-)dX3) % COOSADTVENZT - T) % Sd34TIN - Sd34IIN) *% (OOT/TIN) *% CIABLN - TIIZCCCSATVENVT - T) *

Sd3dIIN) * ((SdIATIN/SATVEN)-) GX + (CC CSAIVEN/T - T) % Sd34TIN) % ((Sd3dTIN/SATVAN + (OOT/TEN)
% CQAMLN - T))-9)dxa - T) % CSd34dIINY SdIVEN + COOT/TIN) * (IABLN - T))/SdadTINVSdIVAN = £Sda9aN

(NOTLVI9INdIG ZOST) SITEVUNG YIINGOYd YOs NOTLVIIIYdId IIHONODA (£Sd093N)

(Sd3sTIN * (COOT/TEN) * CIAMLN - T)I700Sd34I1N
% COOT/TUN) % CIAULN - TIIZEC CSda4dTIN * COOT/TUN) * (CIABLN - T))-IdxA - T) - T) % 2 = 2Sd09IN

(Suv3A JO WAS) SaTaVvUNG YIINGoNd YO NOILVI9IUdIO JIWONODA (ZSdaa3N)

CSd3dT IN % COOT/TEN) % CIAMLN - TII/(CSAISTIN * COOT/TUN) % (CIAULN - T)-))dxXa - T) = TSdQIaN

(NOTLVINDTVD SNI1 LHOTVUIS) SITaVUNG YaIINGOYd NOs NOLIVIDIUdad DIHONODI (TSdaoan)

(1-)IDWN + S2°O x TIN = ID

ANSWLS3ANI ‘RUGLN3ANI. 40 wos cpm

udIN + SAN + ddyN = dwn

$391Ud 2Z61--001S TWAIdV9 ALVATUd 13N G3XId (dwn)

S"Oxx (%/290990°0 - T) * b/Sd4dIN + (4/290990'0 - T) * (T-)SdIN = SAN

SIIIUd 2L6T --SIYNLINULS S.YIIMNGOYd 40 AOS 13N FLVAIUd (Sdn)

S*Oxx ($/S29SET'O - T) % b/Ud4dIN + (4/SZ9SET“O - T) * (T-)GdN = Gdn

S39IUd | 2L6T- IN3WdIN3 3]avand | 30 | 3901S 43N 3LVAIYd (dd"n)

‘S*Oxx (%/6E8E20°0 - T) * %/HddIN + (4/6EBEE0°0 - T) * (T-)YdN = Ya

s30Tdd 2261 =¥901S Wirava | WIINgGISau 43N 3LVAIYd (adn)

¥YANIN + (( LOddNON/dN9N}501)71390 = ((N9N)907)7390

3LVY NOILVZIITIN ALIavava ONTENLOVANNYW (non)

“6s8

“£88

9se

“sse

"ss8

“2se8

“Ise

SWIOLS W1LIdVD W3Y ONY ALIDvVd¥9 “D°AI‘'N

- $2 -


AINHIVSS * SINSSNS = INSOWD

$39Iud 226T - SIsva | VIN - ‘SLOdNI CINSSHS)

98/5 yradyntisa IS = GON 6 2egT oS TD OL6T =39NVE
(9°2) 292° = OHY G62°S

= SH1T NV3H ZTO* 566° sud
(8T62°2) (99202"£)
<b x 200600 + 2b x SOSbTO" +
(189°) (1805°29) ( £T880")

TB ® SSEbTO" +  (d9/(ASOSHD + AdOSHS + AASHS) + SHD)9O1 x 200666" + 966900°- = (SINSOWS)S07

(VSN) S33IUd 2261 - SISV@ VIN - SL¥OdWI (SINSOWS)

AINHIVSS * SAINSSHD = AINSSHS

saaIud ‘IN3HUND - Sisvt JOdWI (AINSSWS)

58/5 ALVWILS 06 = GON 8 Z96T OL 20 096T *3ONVY
(6°L) 929° OHY 820°S = SHIT NV3H TO" = ‘y°3a°S T= 8Su9
(922E6°2) (ozes"2)
<0 x 857500" + 25 * 614900" +
(69282") (688°957) (29992°T)
TD * STZTOO" +  (ASOSHD + AdOSHD + AASHD + ASWDISOT * 606866" +  ££5920°- = (SAINSONS)907

CALTAN3GI-IS¥no) (san ‘S30Tud | INaRUND ~- SISV@ VIN - ‘S1NOSHT CSA’ NSOWD)

ASHS + ASWS = ASSND

SIsva | d0@ - S39IAN3S ONY SGO00S 40 SLYOdWI (ASEH)

AASHS + AOSHS = ASH

W1LOL - S39TANRS JO SLYOdHI (ASHI)

ASOSHS + AdOSHS = AOSWOD

‘WLOL - S3IIAY3S Y3HLO 30 ‘S1vOaHI (A0S#3)

"205

“Tob

“005

"665

“L6E

“96


UBNSOXdN + (1d3dNI901 * 9570 + (dB9dNIDO] x 6G2°0 + (dNOdNISOT x T8Z°O = (CINSOXdN)SO1

$1d7a9gu 39TAYS YIH1O Od YOLVISID FITUd LTITIGWI CINSOXaN)

WANSXdN + (dN9dNISOT = (14SXdN)I907

$1d1399% SWOONT YOLIV4 YOI YOLVISIG 3IIYd (14SXaN)

Y3NSXdN + CCWNOXN + VOXNI/CAYNSXN + AVSXNIISON = CINSXdN)901

4NOdX3 3SIGNVHININ YO4 YOLVISIO 3DIYd LIDIIGWI CINDKdN)

ua9xdn +

(1 - CT-)9YNXdN/OWNXdN) % 29°99 + CT - (T-I9VXdN/OVXN) * SE°SE = CT - CT-DANSXdNZANOXAN) * OOT

XA0NI aN1VA LINN 1¥0dxa Sao0S (ANoxaNd

4ANIONdN * ANTISWdN = 149HdN

(O00T=2Z6T) 3NIVA LINN LYOdWI TIO (149WdN)

dNYNdWON + 1I0dO = ANT49NdN

Cizgva wad SavTIOG) 3NIVA LINN LWOdHI 110 (ANTI9NAND

¥Y3NSSNdN + INSSWN/AINSSWN = INSOWdN

S3OIAUIS GNY SGOO9 YO4 YOLVI4IC LYOdWI ( INSOWdN)

YANSOWN + (TO"O * SN49d4NI901 x 985°O + (dB9dNIDOT * £ZZ2°0 + (dNOdNISO] x THT*O = CINSOWdN)901

SINWAVd 39IAUIS YIH1O YOs YOLVISIG 39TYd ATITIGNI ( INSOWEN)

YANSHdN + (dN9dNISOT = (14SHdN}907

SINBWAVd SHOONI UOLDV4 YOd YOLVISIO 3dT¥d ATITIGNE ( L4SWand

YANSWdN + (CTANSWN + 149WN)/(ATANSWN + AT49NN) 907 = CINSNdN 907

AYOSNI ISTONVHOWIN YOs UOLVISIG 3dTYd ATITIGNI (INSWAN)

- 69T -

(£-JdN % (1 + 0OT/dx3dN) = TaN

39IYd G3199dx3 YO4 AXOUd (TdN)

068

"6se

wa3:)

“958

“Sse

“ose

“see

"ase

“Ise

“ore


unon + 44un + wn = Nan

3SV@ AYVL3NON G3MONYOGNON (NEN)

§v4NN - Man = VONN

(433HS JONVIV@ 3A¥3SIY Wwua0a4) S13ssv 3I1SaWOd 13N ( VONN)

“218

- 991 -


-89-

TABLE A-20: GERMAN PRICE SHOCK

1 2 3 4 5 6 7 8
UNITED STATES
Real GNP (%)...... 0.0 0.0 0.0 -0.0 -0.0 -0.0 -0.0 -0.0
Price Level (%). 0.1 0.2 0.12 0.1 0.1 0-1 0 0.10 0.1
Int. Rate (ST)(+/-) 0.0 0.2 0.1 «20.1 «20.10 °20.1 £2001 «2001
Exch. Rate (FX/US$)(%). » 70.9 -0.4 -0.1 -0.1 -0.1 -0.2 -0.2 -0.2
Current Bal. (US$,B)(+/-).. 0.4 #O.8 0.1 -0.3 -0.6 -0.8 -1.2 -1.5
CANADA
Real GNP (%) -0.0 -0.1 -0.1 -0.1 -0.1 -0.1 -0.2 -0.2
Price Level (%). 0.1 0.1 0.1 0.0 -0.0 -0.1 -0.2 -0.3
Int. Rate (ST)(+/- 0.1 0.1 0.1 0.0 0.0 0.0 0.0 -0.0
Exch. Rate (US$/C$)(%). -0.1 -0.1 -0.1 -0.1 0.0 O12 0.2 0.3
Current Bal. (US$,B)(+/-).. -0.0 -0.1 -0.1 -0.1 -0.1 -0.2 -0.2 -0.2
GERMANY
Real GNP (%)... » 70.6 -0.8 -0.9 -1.0 -1.1 -1.3 -1.4 -1.5
Price Level (%). 0.9 1.6 $2.2 2.6 3.0 3.2 3.4 3.5
Int. Rate (ST)(+/-). 16 1.7 1.7 1.8 #19 #19 1.9 1.8
Exch. Rate (US$/DM)(%). . 2.2 1.305 0.6 O17 0.8 0.9 0.8
Current Bal. (US$,B)(+/-).. 0.8 0.7 1.7 2.6 3.2 41 5.1 6.2
JAPAN
Real GNP (%).... 0.0 -0.0 0.0 O00 0.0 0.1 0.1 0.1
Price Level (%). -0.0 -0.0 -0.0 0.0 0.0 0.0 0.1 0.1
Int. Rate (ST)(+/- 0.0 -0.0 0.0 0.0 0.0 0.0 0.0 0.1
Exch. Rate (US$/Y)(%).. -0.0 -0.1 -0.1 -0.1 -0.1 -0.1 -0.2 -0.2
Current Bal. (US$,B)(+/-).. 0.1 -0.0 0.3 0.5 0.6 0.9 1.30 1.7
UNITED KINGDOM
Real GDP (%). 0.0 0.1 O.2 0.1 0.1 0.1 20.1 0.1
Price Level (%). 0.1 40.2 0.2 0.4 0.5 0.6 O17 0.8
Int. Rate (ST)(+/-).... -0.0 0.0 O01 O11 0.2 0.2 0.3 0.3
Exch. Rate (US$/PS)(%). 0.4 -0.1 -0.3 -0.4 -0.5 -0.6 -0.6 -0.7
Current Bal. (US$,B)(+/-).. -0.2 -0.1 0.1 0.1 0.1 0.2 0.3 0.4

NOTE: Amounts shown are deviations from the baseline path
(%) = percentage deviation from baseline
(+/-) = absolute deviation from baseline


dGHI3 + YNddTa = ddI

s39Idd 2261 ~ ANBWIS3ANI G3XI4 SLVAIYd (dd13)

da * 413 = AdIZ

$a9Tud INSYYND - INSWLSIANI aaxrd WoL (AiTa)

Sd4I3 + 99413 + dd4I3 = 413

$391ud 2261 - "INBHLS3ANT axa W101 a)

AIAVSI/AIA = VSNAIT

(VSN) S39TUd IN3YYNI - FYNLIONIdXZ NOILdWNSNOD 3LVAIUd ( VSNAII)

di * 93 = AI3

jd INZUUND — SYALIGNSdX] NOTLGNNSNOD ALVATUd (A93)

Add93 = AcdNDa

‘S3IIYd ANIWUND - LINGOYd IWNOILYN SSOYO (AdN3)

da93 = cNDZ

$39Td 226T - 1INGOdd TWNOLLWN ‘SSOWSD (dND3)

AdQS4VS3/AdG93 = VSNAdG93

(WSN) ‘S30Td ‘INaSUND - ‘anaowd DI1SaHOG ‘Ssou:

(CWSNAdC93)

Arava + MSAdd93 * ( AVI43 - AINSSW] - AINSSX3 + A939 + d3 x IT3 + AJI3 + ADR) = Adgoa

S39Tud ‘INRWIND - ‘Tondoua 3T1S3W0O ‘SSOu

(ada33)

Fava + MSdO93 % (VI4d3/AVI4I - INSOW3 - INSSX3 + 93 + ILZ + 413 + 23) = da93

$39IUd 226T - 19NGOYd ITLSIWON SSOUS (4093)

§8/> ‘Q31VWILS3 02 = b)
(9°02) 66° = OHY TZ°9 = SHT NW3W beekz0"

(8662°0T) (90£0°2)
(T-)dwa * G65960" + 22Tse°I- =  dNOd3/AVI0a

Sa0Kud ‘INSWUND ~- JONVMOTIV NOTLAHNSNOD | Wilavo (Av.

- 6£-

“69T

“S9T

“Z9T

°99T

“S9T

“99T

“<9T

*29T

“T9T

“O9T


90s Os qwaaa

ToT Araya
oot cava
98 Tx180
96T Ittea
98 Tyosa
oss I<oed
265 T2080
TLL It
ets 12620
208 Ob Fb Tteza
oes Tolza
leh 8b Iolza
zee 98E SLE Ts2za
6oT 1e9za
Se 98 Tsz0
TOL 2yo20
929 ISS 6bS T2oz0
82L L2L 149 929 6bS 948 HLE TL2 GET HET 22T TIsza
Its ots Ilsza
m9 «ss Tosza
os9 Tss20
259 Izsza
62 Itsza
Ez Toe2
9s Ts220
9s T2zza
Ie 6L> T1zza
2ez 9ST SET £kT Totza
9ST SST Tstz0
oF T2020
489 12040
oztoza
219° Of. 1t0za
962 £4690
198 1690
6s2 9f 1290
<1 22290
12> <2 Ts990
Sst ST £<T 9sTS90
459 Ty590
ole T2990
ost SST 9s590
5374 Tis90
Gol GET ST 2ST 8B £2290
£Tz G62 osto90
198 zst090
LoS 9G OLE BLE 90Z BET LOT Td esAva
4t st VSNAGAD
at 2 AGAD
ot ST $T VSNAdGAD
ot OT GAD
9st Ist 8 TL Lz ANVULXD,
SL YAAASXD.
9xT Ist oe 8£ 9£ GL 22 AASXD.
‘ SL OL 29 AGNASXD,
SL 69 AGASXD.
we ££ 22 ASXD
OST Ist 8 @L 9L ZL 89 AOSX2
oS PaVvAXd
9ST OST TST $8 o8 9% ££ SS 4S A9XD
SZ ASOXI
“4L 9h ‘SAINSSXD
LL AINSOXD
6L 8 ‘SNINSOXD
se 64 § INSOXD
is 43AT09X9
ss +5 IS A109X9
is ‘Wosx2
gs w39X2
gL 89 SS ‘9x2
2st AZWIM>
2st UZWULMS
2ST OZWIM3
2ST CZ2WIM3
2ST 9ZWLM
2ST 3ZWIM3
ZIt 21t 66 MD
2ze Tt 2tt 61 NOD
Zev yon
92l 66 £ NINDS
42 s2 O02 tT ALD
92T G2t 02 SAUL
Z£2t 02 AULD
42 G2 6T %T ANVULD
TZ 02 AQNILD
242 G2 4T AIT
S6 6 06 alo
Sol OT as3

Ya@WNN NOILYNDA | JTavINvA
- O6T -


-82-

TABLE A-13: CANADIAN EXCHANGE RATE SHOCK

UNITED STATES

Real GNP (%)..-.eeeeeee eens 0.1 0.1 -0.0 -0.0 -0.0 -0.0 -0.0 -0.0
Price Level (%).......ee eee 0.0 0.1 0.1 01 0.2 0.1 0.1 0.0
Int. Rate (ST)(+/-)........ 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.0
Exch, Rate (FX/US$)(%)..... -1.2 +14 -1.6 -1.6 -1.4 -1.3 -1.2 -1.0
Current Bal. (US$,B)(+/-)... 1.7 1.1 0.1 0.1 0.4 0.4 0.4 0.5

CANADA
Real GNP (%) -0.0 -0.6 0 -0.9 -0.7 -0.5 -0.4 -0.3
Price Level (%). “1.30 -1.5 8 -2.2 -2.6 -3.0 -3.5 -3.9
Int. Rate (ST)(+/-) ve. 0.1 -0.0 2 -0.3 -0.3 -0.3 -0.3 -0.3
Exch. Rate (US$/C$)(%)..... 5.0 5.0 0 5.0 5.0 5.0 5.0 5.0
Current Bal. (US$,B)(+/-).. 0.4 0.3 4 0.5 0.6 0.6 0.6 0.5

GERMANY
Real GNP (%)....eeeeee eee es 0.1 0.0 -0.1 -0.1 -0.1 -0.1 -0.0 0.0
Price Level (%) -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1
Int. Rate (ST)(+/-)........  -0.1 -0.0 -0.1 -0.0 -0.0 -0.0 -0.0 0.0
Exch. Rate (US$/DM)(%)....- 0.7 0.9 1.0 0.9 0.8 0.6 0.4 0.3
Current Bal. (US$,B)(+/-).. 0.1 0.2 0.5 0.6 0.7 0.7 0.6 0.6

JAPAN
Real GNP (%) -0.2 -0.2 -0.2 -0.3 -0.2 -0.2 -0.2 -0.1
Price Level (%). -0.0 -0.1 -0.1 -0.1 -0.2 -0.2 -0.3 -0.3
Int. Rate (ST)(+/-) -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.0
Exch. Rate (US$/Y)(%)...... 0.5 0.7. 1.0 0.9 0.8 0.7 0.6 0.5
Current Bal. (US$,B)(+/-).. -1.7 -0.7 -1.1 +16 -1.7 -1.7 -1.7 -1.7

UNITED KINGDOM
Real GDP (%)....:. eee ee eee 0.0 0.0 -0.0 0.0 0.0 0.2 O11 0.1
Price Level (%) -0.0 -0.2 -0.2 -0.3 -0.3 -0.2 -0.2 -0.1
Int. Rate (ST)(+/-).. -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1
Exch. Rate (US$/PS)(%) 0.3 0.7 0.9 0.8 0.7 0.5 0.3 0.1
Current Bal. (US$,B)(+/-).. -0.2 -0.1 -0.3 -0.4 -0.4 -0.4 -0.4 -0.3

NOTE: Amounts shown are deviations from the baseline path.
(%) = percentage deviation from baseline
(+/-) = absolute deviation from baseline


Ter 3NIWN3130 OJ. (T=) BTEC ONY (O=) VIET NOLLYNDI N33ML3G JSOOHD O1 Y3L3WVUVd
00°T=226T - YO1V1430 NOILdyOSaY

SLISSV Q3I4ISSVIINN S3ILIYOHINVY AYVL3NOW

HLYOM L3N

ELISOd IN3WNY3A09 1L3N

($SN) INSWISACOV NOLLVNIVA SNIGNISNI IN3WNY3A09 3HL 40. suastv NOIZUGI 13N JO WDOLS
(ssn) iNOS. ads ¢ - gMOLLISOd AWI ~ S3AU3S3Y G109 - SLaSSV NOIIYO4 LIN
ANSRRINOS BHL 40 S13SSV NYI24O4 13N 40 4901S

GWNYIAOD FHL 4O SL3SSV NOI3YO4 13N 40 9901S

S$30IUd 2261 - aera VIN - S39IAW3S GNV SGO09 40 S14Odx3_13N

2W - AlddMS A3NOW

IW - AlddMS A3NOW

sa0Idd wee - SINBWAVd 43a4SNVUL

aati ~ SIN3WAVd Ya4dSNVUL

SINBWAVd Y34SNVAL

ces a Sharia BWOONT IN3WLS3ANI

d_3NOINT IN3WLS3ANI

(NBA) SANBWAVd HONE AYNaHISaANT L93NIGNON

(N3A) SIN3HAVd SWOONI INSWIS3ANI 193410

WALOL - S33IANIS 40 SLYOdWI

($SN) W1OL - S3DIANBS YIHLO 4O SLYOdNI

sr] = S3DIAU3S Y3HLO 40 SLYOdWI

WAIUd ~ SATAN U3HLO JO SLYOdNI

AN3WNY3A0S - 3WOINT IN3WLS3ANI wv cic SINaHAY. id ANNOD SY BOIAW3S T1V
I_IN3WIS3ANI 133410

NOILvNb3 33d0 nous Moan * oy Sx ONyaawSTd WOLISILVIS

($SN) SISV@ dOd - SLYOdWI SGO09 3SANVdWr TW1OL

SISVG dOd - SLYOdWI SGO09 3SANVd¥r TW1OL

SISva dO@ - S39IAU3S GNY SG009 40 S1YOdWI

(WSN) S39TUd IN3WUND - SISVG VIN - S1NOdWI

$39IUd INFWUND - SISVa VIN - SLYOdWI

(WSN) S39IUd 226T - SISVA VIN - S1YOdWI

S$30IUd 2261 - SISVG VIN - S1¥OdWI

BN1VA ~ SLYOdWI 110

NOILYNDA SLUOdWI TIO 4O 3WNIOA NI ADNVd3YISIO IWIIISIIVIS

BWNIOA - SLYOdWI 110

S20Ttd zee ~ S1YOdWI SGOOD 3S3NVdVE TV1OL

YOM OOOOT) G3AOTdWINN JO YIGHNN

(ssn) sarisivayia O1104140d WY31 SNOT 40 NSO1S

ALVY_ONTLVOTS - (SSN) SWIVID O1104140d W391 SNOT 40 N901S
‘SUINOTINOS NO SHIVID OF1041NOd WYI1-9NOT 40 3NTWA NOLS

($SN) SHIV13_OT104140d WYIL ONT JO 9SOLS

4aN - SATVT9, 493410 WY31 SNOT NI 3ONVHD

- (SNOSU3d OOOOT) 39NO4 YORVI

. ANSWAO1dW3
B3ONVHIXA NOIZNOS GNV C109 OSNIGAIIX3 SIN3W3AOW AJNOW WY31 1YOHS NI 39ONVHD
WIIN3OISIY - WIOLS WiIdvd 31VAIYd SSOUS

“WIIN30IS3Y~NON - AIOLS WA1IdVD 31VAIYd SSOUD

WOOLS WilIdVD Z1VAIYd SSOuD

ANSWLS3ANI AYOINAANI 40 3901S

(WSN) S39Tad INFWND - ANSWLSIANT AYOLNSANT

S301TUd IN3WUND - IN3WLS3ANI AYOLNIANI

SHD01S, NI 3SV3YONI - NOILYWYOd IW1Idv¥) SLLN3WOd SSOUd

YSN) S39IUd IN3JYYND - INSNIS3ANI G3XI4 JLVAIUd

S391Ud INFUUND - ININIS3ANI G3XI4 JLVAIUd

S39TUd 226T - INSWIS3ANI IWIIN3GIS3Y 3LVAIUd

S39TUd 2261 - ANSWIS3ANI TWILN3GISIYNON JLVATUd

S391Ud 2261 - INSWIS3ANI Q3XI4 31VATUd

(VSN) S39TYd IN3YUND - LN3IWLS3ANI G3XI4 IN3HNY3A0D

$S301Ud INFYWND - INIWIS3ANI G3XI4 IN3WNY3ACD

-ANBHNUFAOS AG INSWIS3ANI G3XI4

30M SYNCH ATHINOW 39VasAV

(VSN) S39TUd IN3WND - SISVHIUNd LN3WNYZAGS

$30IUd INYYND - S3ISVHIUNd INIWNYIACD

$39IAU3S ONY SGOOS NO_39NV1Va

AVILINSGIS3U-NON - (S3ALINIONI XV) SINVYS IN3WNY3ACS

(VSN) S39I¥d IN3YUND - LONDOYd TWNOILVN SSOUS

$391Ud INFN - LINGOYd IWNOTLYN SSOUS

ANS WILN3LOd

$39IUd 2261 - 19NdOYd TWNOILVN SSOud

sIsva vIN ~ 1191430 IN3WNY3A0S

930 IN3WNU3A0D 40 Y901S

. + JONVIVa J0VaL

S3SVHIUNd INSWNY3A09 1v¥3N3I9

SLHOI3M G3XI4 - SILVA 1SFNBINT WYB1-LYOHS 3OVY3BAV NOTIYOS
S1IHOI3M ALITIGVIT G3XI4 - S31VY 1SIYZINI WY3L LYOHS 39VU3AV NOI34N03
SLHOT3M WIVID G3XId - S3LVe 1SFYFINI WU31 LYOHS FOVYBAV NOIZYO4
SLHOI3M LNOdX3 G3XI4 - S3IIYd 1YOdX3 39VASAV NOIZNOS

00°T=226T - SLHOI3M G3XI4 - S391Yd SLYOdX3 JOVU3BAV NOI3NOS
00°T=226T - YOLV1430 dN NOIZNO4 39VAIAV 03193dx3

(ssn) 00°=2Z6T - SLH9I3M G3XI4 - YOLV1430 dNO NOIINOA IOVUIAV GALHSI3M
T=226T - SWIV1D NOI3YOd AG GALHOT3M - YOLV14I0 dNO Z9VaIAV NOT3NOd
@3SV@ dNO -NOILVIANI 391d NOLIOS G3193dx3

00°T=2Z6T - SLHOI3M Q3XI4 - YOLV1490 NOTLdYOSEY JSVUIAV NOIZUOI
ANNOISIO 3SNVHIX3 GYVMO4 HINOW 33uHL

SUINSIZNOS OL SAILTIIAVI] OF10I1NOd IWIDNVNIS

(1 €Z Y3LAV T) GOTY3d 3LVY JONVHIXE SNILVOIS YO4 AWNING

NOLLINI430

- $12 -

cWayd) Taravdr
29 ot
(:90x3) HLOr
oss
229 dN
289 aisvaNr
90X3) aoovaNr
089 gov4Nr
619 ‘OVvANr
665 INXL3NT
(:90x3) Hr
209 THe
sZs ANVaLUC
99S AdNVULWC
(90X3)
195 GAASHE
895 AASHC
£95 AGNASHC
295 AGASHE
695 ASHC
els GAAQSHr
995 ic
s9S AdOSHr
(90x3) Ir
2Ls GAAGSWr
(:90x3) waAorHr
sss aaour
ASHE
ozs ASOWE
2Zg ‘SAINSOWE
sls AINSOWT
us SNINSOWC
OLS INSOWT
ATOSWr
(90x34) 4a09Wr
99S ‘TOSHr
“ss owe
069 air
599 adie
539 atadL1r
(90X3) goad.1r
gadiir
£59 ear
959 File
139 31°
(90X3) sar
© adr
49 aNd Ie
569 ar
959 ID
12g YSNAIIC
ozs AIIC
(90X3) Tir
ots VSNAddIC
sts AddIe
cacy Ud
ots UNddIC
ais darr
25 VSNASSIC
ss Add:
(90x3) 94Ir
9 ae
oss VSNAST
625 aor
86S ‘wasor
(:90x3) UNINVESr
sts VSNAdNOT
oS AdNOr
659 4odanor
cacy di
sss FE!
9S i1a3aor
96S weor
(90x3) or
£69 Masuar
569 M1dSu4r
$69 MO4SYSC
169 MHd9xdsC-
269 MLdXdde
969 TdNodse
969 M4dNOddC
989 D4dN9ddC
169 dx3Nodsr
069 Midst
m9 osiIauosr
(90X43) Avo1ic

1 NOITLvN®3 | DINOW3NW


GAAGSH - GAASHT = GAAOSHr

(°S°N $) SINBWAVd SHOONT ANSHLS3ANI (GAASHE) = °L9S

“AGOSWE + ASOSWT = ADSHT

S@/> SO31VWIIS3 49 = GON $b
CU'ST) 198" = GHY O5E°Z = SHI NVBH 620°

(109¢0°T)
£0 % S6ZTTO” +
(elvez-*t) (s6%2¢0*) (S9602°T) (ob616°2)
20 * 6T62TO" - TB * 666900" + (SWISD7 * GOETZ” + — ((MIYSF/MddSEI/de 901 * LOS59S" +
o°£) (461%0°9)
(CdNSt 1907 « t5eee- To + 9Sb8°2T- = CCMSUSP/Mddae }/AdOSHE 1901

IAMS UIHLO 40 S1IYOdWI S1VAIUd (AdOSNT) “S9S

S8/> 203LVHILSI 04 = BON SB ZB6T O1 20 S96T *3ONVE
C2") TOO" = ONE TOT" = SHI NWBH SES" = US'S 42° = BSUD

£STL9°9T) (9Z08T*6)
CAGAT 3907 * £08526" + £1908°9- = FAMNVUINE 907

BRVATUd. - SLIN3SHAVd. U3ISNVUL CAQNRALME "99S

260°e trs*o tnnS
002"0 900°0 ZoL°T £90°0 (r-)
gS>°O 910°0 90's o2t"O (2-)
260°E 820°0 £TZ:0T 6ST'O a)
29°00 290°0 <er°2 s8T"O (o-)

4vis-1 2430291 Avis-1 143039V7 owl

S9/> :G31VWIIS3 8 = GON ob zeer BS Les ut, ?JONVe
(g°<) 292° = OHY 90° = SHT NV3H 800 esa

(92669°2)
COOT/(TISUT) * 2433099V7 + = (OOT/(IDMT4SUS) * T43099V1 + SZZS5TO" = d14P/AGNASHE

c Ss" 'N $) SAN3WAVd 3WOINT "INSHLS3ANI ‘193UIGNON | CAGNASHE) “29S

$8/> iG3LVWIISI 69 = GON 8 Z86T Ol o8 S96T *3ONVE
206°2 = MQ Les°2- = SHI NV3N 995° = “Y°3°S ZTO° = BSYD

(9E92E°T)
CCT )dNSd/dNOdP SOT * & % EZZOZT +

(29920°T) (49950°2) .
(N3P 1901 * 299065" + 69490°S- = ((dNOdF * T0.LTYC)/AGASHE 901

c 7S" ns) SINSNAVE | 3HOONT 'INSHLS3ANT 493uIG (AGASHT) «295

SUZ4SNVUL GNV S39IAY3S 4O SIYOdWI “I°II'T

- SIt -


$8/> :G31VWIIS3 IS = GON 8 296T 94 28 get ous
)

22Z°T = MG S92°> = SHIT NV3H 202° = “UZ
(ypz02°T) (ezes"s) (2062 °oT) (9TZ899°)
189 * TOLE50° + SUD * OFBbBO" + (T-JAVSUD * 655602" + ST9¥>T° = AVSYD

Lv 11S0d30 SONTAVS (AVSU)

$8/> ?Q31VWIIS3 = £9 = TD £861 O1 ZB L96T *39NVE
(6°2) SSS" = OHY 249°9 = SHI NaN Sf>° = "Wa'S 246° = BSD
(216£9°2) (yseg°ZT) (9999%6")
WUD x HOTHEZ” + SUD = SIEGEL" + 292555°- = | 3WILUD

£92°T- FHS
295°0 95%" 0- 1-)
28=°0 2T6°0- (0-)

dvis-1 143099V7 ovl

S8/y :Q31VWIIS3 %f = GON %b Z86T aed: 2 3eet_ ?JONVa
6TS°T = MO 666690°- = SHIT NV3H 22° = sua
(99055°S) (Toz60s*)
(au9)1aa * 852592" + = (CC T)G0N9/(1)4N9)190) * T43099VT + =—099THO" == = (S49)7130

‘SaAuaS3u ‘arner aus (449)

S8/> :Q31VWIIS3 £> = GON % 286T gt TO 226T ?39NVa
(8°9) TSZ° = OHY SE9°>- = SHIT NVBH 90° = “U'3°S BEZ° = BSD
(61T095°8)
<b x £89IST" +
(990°OT) (TZ98T"9) (9ZeTs9" ) (102°<0T)
2B * G8HL0Z2" + TBH 21625T° +  ITe4G * TO9ZbO" + S9zBL*b- = (109/84NI9)901

SNvE | cy a3 “ONaWND (@un39)

“Leo

“9S

“Sto

“ot>

- 2% -


=13-

on foreign currency assets. As a result, the open interest parity
condition holds (equation 22), which equates expected returns on home
and foreign currency assets. This condition is used to determine the
nominal exchange rate, given expectations about future appreciation or
depreciation.

The expected change in the exchange rate, equation (23), is
assumed to reflect partial adjustment toward long-run equilibrium and
complete adjustment in response to expected inflation differentials.
The long-run value (equation 24) is in turn a function of the long-run
real exchange rate (assumed constant), and expected relative price
levels. In this model the balance of payments identity (equation 26)
serves only to identify the net private capital inflow or outflow which
corresponds to the current account. Because of the assumption of
perfect substitutability we do not need to model explicitly the demands
for home and foreign currency assets.

This approach differs substantially from earlier versions of
the MCM (Stevens et al. (1984) and Hooper et al. (1983)), which do not
assume perfect substitutability and therefore model capital flows
explicitly. Our present view is based on a growing body of empirical
work which fails to obtain satisfactory estimates of capital flow or
bond demand equations. While there are many studies which find evidence
of a risk premium on foreign currency assets, we know of none which has

succeeded in relating this premium to economic variables in a structural


-88-

TABLE A-19: UK PRICE SHOCK

Sustained 1% Increase in Price Equation Residual

YEARS AFTER SHOCK

UNITED STATES

Real GNP (%).......-eee eens -0.0 -0.0 -0.1 -0.1 -0.1 -0.0 -0.0 -0.0
Price Level (%).. . 0.0 0.0 -0.0 -0.0 -0.0 -0.0 -0.0 -0.0
Int. Rate (ST)(+/-)... 70.0 -0.0 -0.0 -0.1 -0.1 -0.1 -0.1 -0.1
Exch. Rate (FX/US$)(%). » 01 0.4 O04 0.3 0.3 0.2 02 O11
Current: Bal. (US$,B)(+/-).. 70.1 -0.5 -1.1 -1.4 -1.4 -1.6 -1.7 -1.6
CANADA
Real GNP (%).....-..- eee eee 70.0 -0.0 -0.0 -0.0 -0.0 -0.0 -0.0 -0.0
Price level (%).. 0.0 0.0 0.0 0.0 -0.0 -0.0 -0.0 -0.0
Int. Rate (ST)(+/-)... : 0.0 -0.0 -0.0 -0.1 -0.1 -0.1 -0.1 -0.1
Exch. Rate (US$/C$)(%)..... -0.0 -0.0 -0.0 -0.1 -0.1 -0.1 -0.1 -0.1
Curren': Bal. (US$,B)(+/-).. -0.0 -0.0 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1
GERMANY
Real GNP (%)..........----- -0.0 -0.1 -0.1 -0.1 -0.2 -0.2 -0.1 -0.1
Price Level (%).. . 0.0 -0.0 -0.0 -0.0 -0.1 -0.1 -0.2 -0.2
Int. Rate (ST)(+/-).. . 0.0 -0.0 -0.0 -0.0 -0.1 -0.1 -0.1 -0.1
Exch. Rate (US$/DM)(%). . 0.0 0.0 o.1 0.2 0.2 0.2 0.2 0.2
Current Bal. (US$,B)(+/-).. -0.1 -0.3 -0.4 -0.5 -0.7 -0.9 -1.1 -1.4
JAPAN
Real GNP (%).......-----00- -0.0 -0.0 -0.0 -0.1 -0.1 -0.1 -0.1 -0.1
Price Level (%). -0.0 -0.0 -0.0 -0.0 -0.0 -0.1 -0.1 -0.1
Int. Rate (ST)(+/-). - 70.0 -0.0 -0.0 -0.0 -0.0 -0.0 -0.0 -0.0
Exch. Rate (US$/Y)(%)....-- 0.1 0.1 0.1 0.2 0.3 0.3 0.3 0.3
Current Bal. (US$,B)(+/-).. -0.0 -0.3 -0.3 -0.3 -0.4 -0.5 -0.6 -0.8
UNITED KINGDOM
Real GDP (%).......---+0--- "0.3 -0.4 -0.6 -1.0 -1.3 -1.6 -1.8 -1.9
Price Level (%). 1.5 2.5 3.1 3.6 4.0 4.2 41 3.8
Int. Rate (ST)(+/-) . 0.7 0.8 1.3 1.5 1.5 1.5 1.3 1.0
Exch. Rate (US$/PS)(%)..... "0.4 -2.1 -1.9 -1.7 71.7 -1.6 -1.4 -1.2
Current Bal. (US$,B)(+/-).. -0.6 -0.4 0.4 0.5 0.7 0.9 1.0 Li.

NOTE: Amounts shown are deviations from the baseline path.
(%) = percentage deviation from baseline
(+/-) = absolute deviation from baseline


(COOT/(1:)M94SN49) % 24302907

(2%609T")
TB * 0£2000°

+

(6) SoZ"

(2°T) Tot

58/5
(9S) 985°

98/9 M on rssa

AGNASXD + AGASXS = AASXD

S1dT3934 | 3WOONT “INSWISSANI_ WoL (A x9) “L06

04 = GON %d 2861 O1 ZB S96T :39NVE
= SHI NVBH SZT° = "a'3°S 816° = BSYD

(T9TZ9°9) (18280°2)

(14AdN949 1901 % 888866" + S6Z05°9- = (AdNVYLX9)907

S8/> : yg]
= OHY

BLVATYd - S1dI3938 YISSNVUL (AdNVULXD) *905

6Ito Ob=°0 tHNS
oE°T 210° 626° 20°00 (s-)
oo°T 20°0 626°S 890°0 (2-)
o°T 950°0 626°S 20T'0 a)
oe °T 860°0 626° 9=T°O (0-)

AV1S-1 243099V1 AviS-1 143029v1 v1

62 = GON ob 286T OL TB £96T *3aNVY
= SHTNV3W STO" = "wa°S Trp" =

(99%5"S)
+ COOT/(T)SUD) * T43039V1 + 92T0E0° =  d949/AQNASXS

‘SLdT393U 3WOONT INSHIS3ANI ‘LDIYIONT (AQNASKS) “S05

jaauywrisa
= OHY =

TLOs@°T) (36

C
MI4ND49 x 6TETOO" +  LZZ

(2°) 969°

ad ?Q31VWILS3
= OWN S2s"s =

<> = GON 4D sogr OL sts 2L6T ?JONVe
SH] NV3H sTO" = “2's sua

( 98990") (22210)
2B % S8SET0" + 2B * B09S00" +

yy"
280

= (M94439/I4dN9d4I9 * 301149 )/AGASXS

S4d1393¥ SWOONT INJWISJANI 19310 (AGASKD) “boo

s2Z°0 ?HNS
69270 262°0 (-)
8oS°T £86°0 (o-)

d4vis-1 1430391 sv7

99 = GON ob 2egt Ol 2D 9961 *39NVa
‘SH1 NV3H 60 was s6e° = B8SuD

CCCI )dNSd9/( I Md839/( 1 )M4d49)901) %* T43099V1 +

¢
(ML4dN949 1901

96056°S) (31269, g)
Ttt2Zz*t + “9- =  (dN9d9/AdOSX9 1901

SHIIAWIS Y3HLO 40 SLYOdX3 BAVATd (Ag0Sx9) “£06

SUBISNVUL ONY S3IIAY3S 40 SLYOdX]d “O‘II'S


set yquouyny Aueqeuow °D
seqey ysoueqUuI u0yoeS Buyyueg e4eATdd “a
aqeseussy Aueqyeuon “VV
qexueW TeToueuTg o;ysowod “IIT
seourted °F
suajsueul pue sedtAuas JO quodxg °d
Suessueu] pue sedqTAues Jo quodwI *9
Spoop Jo quodxg *¢
spoop jo quodmy *y
qunoooy queuumng "IT
UudTeeM pue SsBuyaes e4eATud "9
4oqyoes JuemUUeACD *¢
ewoour eTqesodstq pue Buypueds o74sowog ‘“¥
apts TeeYy oFyseuog “I
?8] Tepow Auqunoo WOW ue Jo yewuoJ puepueys aul
*uoyjzenbe Buypuodseuuos Jo uequmu eu UTA
UMOYS oue SeTQeTUeA SNouaeZopuse STTUM ‘uDOXTu PuomAay ayy aaey saTQeTUeA
snoue8o0xg ‘uoTyTUTJep uous e UTM ATTeOTJeQeUdTe aTqeTueA YorO
SOATS BUTISTI STQeTUeA SUL ‘Sueedde Tepow oyy UT eTQeTUeA YoRs UOTUM
uy uoyyenbe yore Jo uequmu ayy SeAT3B aTqey aoUeUeJed-ssoud sul
suoTyenba ayy MoTaq payetngqes
aue SquaToTJJeoo BET peqnqyuystp Aue Jo senTea aul ‘uoyTydyuosep
quous e pue ‘seseyqueued uy aTqeyueA epys—puey-qjeT peqetoosse
ayy gO emeu ayy ‘uequmu uoTyenbe ayy SeATS euTT quemMoo uoTyenbe
oul *soTasTqeqs uoysseuSeu Auewums amos Aq paMoT{oJ ‘seseyquoued
UT SOTISTIEIS-3 UTOUX UQTM ‘SENTeA JUeTOTJJe0o0 Sq} UITM pequodeu
ST uoTyenbe yoegy ‘MOTeq uMOYSs Se uoJoes Aq pue ‘(MON pue “S'n ‘ueder
‘huewuey ‘*y¥°N ‘epeued ‘uepuo ut) Aujunoo fq paednous sue sucTyenba
aUL “SUOTITUTJOp eTqeTUeA ayy pue ‘aTqQey sdUedeJou-ssoud ayy ‘SUTISTT

uoTzenbe ayq = :squed seuyy sue suey *TepoW AuqQuMOOTyINW a4 JO VOTSUAaA

quauuno ayy JO BuTASTT eyeTdwoo e sepqaoud xtpuedde sTUL

Buy4eT1 Tepow +z x}pueddy


4ar/OAAGSX = AGASXC

C sins) ‘$1d7393u WONT ‘INWIS3ANT 493uIG (GAAGSXxr)

(2ddNSdsC/MOSNar) x DOLTOr * SZ°O + (T-I90LTEr = JaLTEr

SUaNSTaUOd NO SHIVID | "IN3HIS3ANI 493410 (dqLTer)

SX3C % GANVULXE = ANVULXT

CS'n $) SidT39g4 UdSNVEL COANVULXE)

INX4VSP % SNINSOXC = INSOXC

$391ud 2261 - SISV@ VIN - S1OdWI (INSOXT)

AINX4VSC * SAINSSXT = AINSSXC

$39Tud INZWUND - SISvE VIN - S1UOdXI (AINSOX?)

S8/> =031VWIISI 28 = BON ob Z86T one 2b Jeet 3ONVa
206°T = MQ Z°SESST = SHIT NV3W £/2°OSE = “Y"3°S 666° = BSUD
(ZIT Tse) (T9TZZ=°)
ASOXT % 6bZ00°T + 2606°TZ- = SAINSOXC

(ALTIN3OI-ISWNB) (WSN) S39Tad INSWUN:

ISV@ VIN-S1UOdx3 ( SAINSOX)

S8/> fO31VWILS3 OZ = GON Td £86T OL mae 226t aN

(9°ST) 9S8° = OHN 8° SBbbT = SHI NVBN ISb°9TS = “Yas
(oTos* 92) (9869°Z)
(Cdr 7ASXP + OXF) * LT6Z*T + 92°0ZZ22- = SNINSOXE

(VSN) S39Iud 2261 - SISV@ VIN - SluOdXa (SNINSOXP)

ASXr + AOXP = ASOXC

sIsva dO@ - S39IAN3S ONY SaoC0S 30 ‘S1u0dXa (ASOXP)

‘SX3r x (QAAOSXT + GAAGSXT) + ASOSXT + AdOSXT = ASXT

WAOL - S49IAUIS 40 SLUOdXI (ASKT)

Yar/OAASXE = AASKT

SLd1393Y 3WOINT IN3HLS3ANI (AASXP)

- 220 -

"£65

"26S

“T6s

"06S

"68S

“seg


3LVY JSVILYOW SPAS, eNOS ea tee

31Va ONIONS) wnIniw a anys SN3 JO NYE

SINNOIIV LISOd30 WAVE SNIYV319 NOGNOT NO 31va

AVG Y3d ST3NAVE 4O SNOITTIN - WNI1ONL3d JO NOLLINGONd “HN
3LVY_NOLLVI4NI GV3HV GOIN3d 3NO 03193dx3

00° T= 226r = 3 Sao rauas 40 S1¥Odx3 YO4 YOLVI49G

Z2Z6T ~ XJONI SN IVA LINN 1u0dx2
00°T=226T ~ INdino ONTenLa¥anNVH > XJ0NI 391d 31VS310HM
ASNSEEND AN3WLSIANI NO WNIWId

SNOSU3d - NOILVINdOd *3°/N

00°T=2/6 ~ S39IAU3S 40 S1UOdWI YO4 OLV143G
(VS) 00°T=226T - 1dOddT ‘TIO-NON - YOLV1I390 1YOdWI
(vs) 00° 261 _— X30NI ana AINN 14OdHI

(VS) 00°T=226T - SISV@ VIN - YOLV1430 1YOdHI

00° eet = ¥O1V1330 dND
(VS) 00°T=226T - YOLV7430 1INGOYd II1S3IWOd eo
(VS) 00°T= seer = yoivaaad AN3HISNray 1S0) YOLIV:
39VY3AV SNIAOW - SNOTIV1939dx3 OLAV aNE
00°T=2Z6T - norLawosey 11Sawod - HOLVISEO LIST IdNI
0*OOT=226T - X3QNI 331d Y3WNSNOD
ava When 'S39VM NI 3ONVHD 39VIN3IU3d
ava TWONNY - Am) 301d NI 39NVHD 39VIN3IU3d
alva 7 - TH NI JONVHD 39V.1N39N3d
alva ayia =~ dN9 NI JONVHD 39V1N39N3d
(CVS) 00° T= 22or = ¥O1V1430 NOIiddOSaY IILS3WOd
VSN) Y31uvN® JO ON3 - HLYOM 13N
REA} 4BLYVN® 40 GN3 - HLYOM 13N
(dO@) SMOTANI IWiIdVI Waal SNOT IWIDId4IO
SNOOLS YBLNWN JO GN3 - INIWNYIAOS 3H1 JO SL3SSV NOIIYOS 13N 40 XI01S
(WS) S39Iud 2261 - SISV@ VIN - S39IAU3S ONY SO009 ~ S1uOdxX3 13N
SW - AlddN'S A3NOW NI 3ONVHD
SNIOLS YALUVN 4O GND - fH ONITHIIS - AlddMS AJNOW
NOTLVND3 SH NI WwNdIs3y
SNIOLS YILYVNB 4O GNI - EW - AlddMS A3NOW
SNIOLS YILYVND a0 GNa - IW - AlddMS A3NOW
101 - SINSWAVd YI4SNVUL
sINanAva SWOONT IN3HLS3ANT
ANBHAYE 3 HOON, ANSMISaANI 19341d NON

S39IAUIS Y3SHLO 40 SLUOdWI
Vid 30VU140 NOILIIYIG GNY SONFY1 JIWONOI3 “WN 3JTIINOIIY O1 WYFL IwNGIsaY
. . cveny, iSva dOd - S1YOdWI SGO0D “¥°N W1OL
dO@ — SI9IAURS GNV SG009 JO S1YOdNI
wan eoSoTud ANSUYND - SISVG VIN - SLYOdNI
(WS) S39Iud INFNUND - SISVE VIN - S1YOdHI
(VS) S39Iud 2Z6T - gisva VIN ~ S1YOdWI
VA - S1NQdHI_ TIO
ALIINIGI SLYOdNI TIO WoIsana | NI Wu31 IvndIs3y
AVG Yad S13uuva ag SNOLNIN S1NOdHT 40
@04) S39TYd 2261 - I SGOOS “W°N ‘W1OL
SUaNOTaWOS OL S3I1T11avI7 orsos1s0d BLVAINd 40 3901S
SUY3NDTZYOS NO SWIV1D O11041N0d J1VAIYd 4Q XIOLS
‘SUINIIZNOS OL SIILIVIGVIT WY31 SNOT atl 40 D01S
‘SY3N913YO4 NO SWIVID WY3L SNOT 10 40 ¥304S.
SUINSIZYO4d OL SIILTTIGVIT IN3WLSIANI Pees 39 WIOLS
‘SY3NDI3NO4 NO SWIV1D INSWISIANI 193410 40 ¥IO1S
SLASSV “IVLIdV3 ‘IVLIN30IS3Y-NON 0 3411
G3)RIOM SUNOH wos | Apa
‘SONVSNOHL - aN SHAD TNA
¥YO193S II1GNd 3HL OL SNIGN3] NV NI 39NVHD
CVS) YBLYVND JO ONS - S39TYd 2261 - IWIINSGISIY-NON - AIO1S IW1IdVI 3LVAIYd SSOUd
C ) Y3aLYVN® 4O GNA - S3ITYd 2261 - AIOLS W1IdvI JLVAINd SSOUD
SMOLS YALYVNH 40 GNF - YOLIIS ITI@Nd FHL OL ONIONS] WV 40 NOLS
(VS) B318VMD 4O_ON3 - S39TYd 2Z6T - INSWLSIANI AYOLN3ANI JO XI01S
(VS) YaLBWNS JO ON - S33IYd 226T - SNISNOH - NIO1S TWiIdvI FLVAIUd SSOUD
SWIOLS YALYVND JO GNF - YOLIIS I17ANd JHL O1 SNIGN3] YNVE-NON 4O NOO1S
(VSN) INSHLSIANI ena aa 30 = Add93
(VS) S39IYd 2261 - INSWLS3ANI ANOLN3ANI JLVAIUd
(WS) Sa9Iud ZZ6T - INSWLSIANT NOLLOWISNOD WIINSGISIY JLVALYd
$39Tdd JNSYUND - INSWISIANI G3XI4 W.1OL
CVSN) S39Tad INJYUND - INBHIS3ANI G3XI4 JLVAIUd
CWS) Sa3Tud 226T ~ INSWIS3ANI_ IWILNIOIS3YNON 31VAIUd
(WS) S3a3TUd 226T - SNOILVEOdYOD IIIGNd - INSWIS3ANI O3XI4
(WS) S39Tud 2261 - IN3MIS3ANI G3XI4 31VAIUd
(WS) S39Tud 226T - .IN3WNY3A09 WY3INI9 - NOLLVWYOS WiIdv) O3xI4
(VS) S39Iud 2261 - INSWIS3ANI 3X14 W10L

CVSN) S39T¥d LN3WND - S3SVHIUNd dngeaianos

(WS) S39Tad IN3IXYND - SASVHIYNd LIN:

(S1LTIS) SGNOG IN3WNYIA09 40 ‘awe WioL
¥YOLI3S IIVGNd 3HL O1 SNIGNI7 YNVG-NON NI 39NVHD
waLayN® Yad - TIvd 29, ALVa JOVINIIN3d NI_39NVHD

IAU3S ONY S009 NO JINV1VE
ANBHISaANT WIUNSOIS3Y S3ALIN3INI XVL
ANBHLS3ANI TWILN3QIS38-NON S3ALLNJINI XVL

NOLLINII30

~ 602 -

ez 2H143
992 BLE]
(9806) aqua
gs2 aqua
(90x3) 1053
£22 1d3
692 SxXda
192 An9xd3
g92 IdMd3
(9x3) Wada
(90x3) dOd3
992 SHd3
glz ‘TIONWd3
Zz ANSWd3
Le INSOWd3
£12 dNSd3
222 da9d3
0L2 vo4d3
822 dXx3d3
9L2 woad3
992 Id3d3
982 MH3d3
622 dod]
bz THHId3
SLT dNOHIda
ta d3
6eT VSNMN
O6T Na
(90x38) Ey
ols ‘SVIN3
Lee INXL3N3
6be ASH3
ts2 Stl
(90x3) 43SW3
rd =H3
(90x3) THA
st2 ANVULH
912 ‘AASH:
ced AGNASHA
sIz AGASHS
yac4 ASHI
212 ET
(90x3) PENG TE]
02 ASHA
. er2 ASSH3
ot2 SAINSOWS
022 AINSOWS
Tee INSSW3
T AT09W3
(90x3) 43709W3
Z6T 1
soz
gos 14173
20s 34173
ots 0113
605 90113
862 W113
L6Z 90113
(90x3) YN3d113
Tez ‘SYNOH13
$82 473
£82 313
(90X3) 9913
82 Unda
062 d
292 9a743
Tez Ilya
682 dHy3
£92 dSON3
tt VSNAIIZ
(90X3 ) II:
est dHI3
got AAIZ
OLT VSNAddT3
2st UNdsT3
(90X32) 9d4I3
69T 41a
(90x3) 99413
L9T 4313
Tet VSNASZ
ost AS3
092 193
192 AdS93
(:90X3) EI
952 Wwasoa
(90x3) aINVES3
(90x32) UNINVYS3

1 NOILvNb3 | DINOW3NH


WHS!
zog roe TVHd1Wn

298 TLL d3dxXVS
ZZ dIdNYS
926 Wud

926 616 S16 LI6 916 059 822 96T 2ST Ob

226 616 816 ZI6 916 289 0S9 d IMO
S16 SS9 692 ‘gana
2498 998 S98 yaar
Seb Wau
SI6 16 88> SB Eb SZ XIE HOE 962 GSZ 52 £52 ST CEN
9ST GET SET EST 221 98 248 SB} Ro)
6s2 Odd
os WwoIsiId
926 a
626 826 £26 A9XO
926 XTOSHNO
169 If9 £29 O65 S6b 95h Beh OZ GLZ ITZ GOT 66 2£110d0
826 SSB LoS 6ZE TLE 492 902 BOT TET ar ‘1I0d0
626 Lz6
826 XTOSHrO
826

LoL L.
Lol ANH
LoL LoL ACT
LoL 9s ASN
Lol GEL Aa0H
LoL bel AIK
<sS AZCH
SS 66S AnrH
sss SS ALCW
SS £59 ArH

<SS 86S
£55 4S ATH
<sS StS AICH

oss 2! 28<
oSS OSS A3rHw
Iss AIH
ses Az
ses 295 ANSH
ees ses ALSW
ees Sef O8F AOSHI
<8z OLE A1SH

ses 18k
ses Lls AION
. ses S25 LOZ Aa9H
EBs 222 29 AION
£02 10z AN3H

$02 £02
£02 202 ARH
£02 002 AC3W
98s £02 <6T A93W
£02 66T AQ3H
Lo ANH
6> AL

sb
926 S26 426 £26 G9XdSWIW

8b yb ACIN
Bb Sb AS:
Bb Ob A3ZIH

%26 169 byS S6d OLE

S25 $25
9S 925 S25 IIS Agar
925 60S GAC

zes Tes LsG ANVULXT
oes

ses GAASXT

ses AASXE

s6s 08S AQNASXT

ves 615 AGASXT

ses 185 985 ASXe

465 S6S 985 +8S GAAOSXT

8S Aosxt

465 985 <85 285 AdOSx
L465 98S =8S

ASOSxf

£65 46S 985 bes GAAGSXr
OASxr

29g 195 095 Agxr

- Bet ‘Y3EHNN «~NOLLVNOI | JTEVIUVA


(24dN9d49/M94N39) % IG11G9 * SZ-O + (T-)901LTID = JGLTE9

<40°O NS

£ST"0 T00°0 (ST-)

10 100°0 (T-)
Ot'o 200°0 (x1-)
£95°0 200°0 QI)
T2Z°0 200°0 att)
228°0 <00°0 (OT-)
200°T £00°0 (6-)
tst't £00°0 (s-)
1S2°t £00°0 (L-)
225°T £00°0 (9-)
Tts‘t <00°0 (s-)
Ts9°T £00°0 -)
699°T £00°0 (z-)
Tss°T £00°0 (2-)
To2"t £00°0 ai)
£26°0 £00°0 (o-)

AVIS-1 143099V7 wv

S8/> F031VWIIS3 9S = GON $8 286T OL 28 69 Set ?3ONVa
(9°) TZS" = OHY ££8°S = SHI NVBW 464°T = “¥W°a'S sud

(£T9z8°2) (2626T'S) CS29bL°T) (o9ZT" 5)
fbx LiS8b°T - 2b % £026°T - B® b2856° - TI2dd x 9960T°S +

(COLETHZ "OKC CCT) YIO/(TINIC) % CIIAMNSE) % 268902" Or ( (1 N39/( T)YTI) % CIIAGNDT)
% 2S596S"Oxx(( T)MID/CIIAGNON) % ZLTSST*Oxx(((1)YI9/(1IUID) % (IIAGNDD)I190) % T49090V1 +

( 19625")
S@oi'S = Ja1709

SUNOT3UOd NO SHIVID INSWISIANI 193UT0 NI JONVHD (901109) “6/5

SFILITIGVIT ONY SWIV1D IN3WISIANI 193410 “V°A‘S

LB IVH TWIINYNI4 TWNOILYNUZINI “AS

- Oot -


005 * ((THS)901)7130 = TWHIdD

aLVa IVANNY - TH NI 39NVHD 39V1N39U3d (THHOd9) ‘Seb

-%-


‘SNINSSWD * INHIVS = INSOMD

(vs) ‘s3oTud 226T - ‘SIsva VIN ~ SLYOdWI CINSSMD)

‘SWd3/(AASHD + AOSHD) + SHI = SNINSIHD

(VSN) ‘s30Tud 2261 - SISV@ VIN - ‘S1¥OdNT (SNINSOMD)

SSAINSSWD * AINNAVS = AINSOWD
(WS) S33Tud IN3WEND - SISVG VIN - SLYOdWI CAINSOMD)
ASH + AOSHI + ASND = SAINSOWD

CALLIN3GI ISvN) (VSN) S39Iud ‘IN3WUND - sisva VIN -

‘SLYOdHI (SAINSOMD)

-a-

“99

“99


-59-

For the United Kingdom, although an increase in government
purchases tends to have an immediate and positive effect on real income,
the multiplier is less than one throughout the simulation period, as
shown in Table A-2. This result stems from two features in the U.K.
model, namely a very small short-run marginal propensity to consume and
a very high marginal propensity to import. (The long-run marginal
propensity to consume is 1.0, as reported in Section III.) In this
respect the current model differs from earlier versions of the MCM, in
which the marginal propensity to consume was higher, due partly to the
inclusion of wealth in the consumption function.'1 Another noteworthy
result is that the impact of the U.K. expansion on other foreign
countries is even smaller than the Canadian expansion. This result can
be explained by the very low multiplier in the U.K. model and by the
relatively low volume of U.K. trade with the United States, Canada, and
Japan.

Table A-3 presents the results of the fiscal expansion for
Germany. In the case of Germany, real income initially increases by
more than government purchases increase, but gradually this stimulus is
crowded out. The behavior of the exchange rate path differs from our
prior expectation in that there is an initial depreciation of the DM
vis-a-vis the U.S. dollar. This result is due to the slow rise in
German interest rates and the relatively rapid increase in German prices.

In this case, as in the United Kingdom simulations, there is not a large

1lsee Edison (forthcoming) and Stevens et al. (1984) for more discussion
of this point.


(C£-M4dNOdSr % (T+ OOT/dXSNSddE) = TdNOdIr

woivia30 GND NOIZNOA JOVUZAV GILIZdX (TdNidse) * 869

Oboe 28°0 ¢ TT OL 0 = 4) WSL >
- PIMAdNSdSE/C( - CIMSGNSAAT - C(O IMSGNSGAT) % (P-)%xZE°O 0 STT- = FIWNS * OOT = dxX3NOdIr

a3Sva@ dNO “NOTLVTINI 39IUd NOIZWOS O3193dxF (axanadse “169
(8ZZZ0° T/T dal LLOEZE* OxMNIGD % 268902" OxxdNIdT % TIBET" OxxdNSdD % 9HBSSS*OxXdNDGN) = M4dNOdIC
(°S°M $) SLHSI3M G3XI4d - YOLV1430 GND NOIZNOI BOvuaAv a1H9T3M (M4ddNDddC)  ° 969

- Tot ~


-64-

real income because of the fall in consumption and investment.

Moreover, domestic currencies appreciate, leading to a fall in prices.
The results of the appreciation and the decline in real income lead to
ambiguous effects on the trade balance. In the case of Japan, the trade
balance initially deteriorates before improving. Exports decline by
more than imports in the beginning; this trend reverses after three
years. The German trade balance shows just the opposite pattern.

Table A-12 contains the results of a coordinated interest rate
increase. In general, the results show a smaller decline each country's
income and prices than in the single country shocks. In this simulation
the monetary contractions abroad result in higher interest rates for all
countries, so that interest rate differentials are smaller. As a result
the exchange rate for each country does not appreciate by as much, and
may even depreciate. This difference in exchange rates between the
simulations tends to stimulate demand, relative to the single-country

shock, in each country.

Exchange Rates

These simulations are included primarily for analytical
purposes, and do not necessarily represent a plausible policy scenario.
They highlight the responses in each country to an "exogenous" change in
the exchange rate. Table 9 summarizes the exchange rate results
obtained when the U.S. dollar depreciates, first vis-a-vis the other

four MCM countries, then vis-a-vis Japan and Germany separately. In the


QUN3ST19 * (OOT/THD) % CIAULO - T))/CCUNSSTID * (OOT/TUS) * (CIAULS - T)-))dx9 - T) = d30939

NOLLvI93ud30 ‘SIWONOD3 (430939)

d9 x CYNIND + T) 907 3S73 dd * (T0000"T)907 N3HL °O 37 YNIND 4T = AYNIND

WILN3OISIY-NON - Wwiravo | 40 1809 wasn TWNIWON ‘CAUNONE >

(2A8L9

- T)/CSNAVD309 + OOT/dX3d9 - (OOT/ TUD) * (DAULD - T)) * CUNINVUSD - d30939 * JAULD - T) = YNINS

WIIN3OIS3Y - WiIdvd 40 1S09 Y3SN 1W3¥ (45ND)

o/II9 + (T-)IDS = IDE

INSMIS3ANI AUOINANI JO 9901S (I1¥9)

99 + d¥9 = OK)

WOLS WiIdvD SSO¥S WW1Ol (49)

S*Oxx(92900°0 - T) * $/9419 + (T-)SNO * (52900°0 - T) = S¥)

39018 Wwirdva | "INSHNAAGO ssouo (3981

UdxO + UNG = ddd

WIOLS WLIdVI BLVAIUd SSOUD (d¥9)

S"Oxx (6/80290°0 - T) * /UNdSIS + (T-)UNdND * (6/80590°0 - T) = YNd*)

JWEINSGISSU-NON - 9901S W1IdV9 ALVATUd SSOWS CUNGXD)

S*Oxx (6/TELETO"O - T) * o/UddID + (T-)UdND % (H/TEZETO“O - T) = YdXd

WIALN3IGIS3Y - WIOLS WLIdVD ALVAIYd SSOUS (udyd)

- 66 -

(C.L0ddN99/dN99 1907730 = €(N9I9)907)7130

3LVa NOILVZITILN ALISVdvD (N39)

“Slo

“LLo

"9Lo

“Lb

“slo

"Lb

"Lp

“69>

“89>

SWOOLS.WiIdVI W3Y ONY ALIDVdVD “3°AI'S


026 952 ALNX

026 AUX

026 665 £oo ArNX
026 zee SLE ASNX
026 02 sé6T ARN
026 2b 6F aanx
202 «96T Agux

<> ADUX

wsL SSL 859 AneX
695 SSS ALLX

616 85S AEX

esS I8t b/s ASX
855 002 6T ARrX
855 > eg AWK
9f2 222 88E ANSX

43GHNN «=NOILvNds | JTavIvA
= 902 -


-17-
which can be re-arranged as

~ * tk
InE=inE - (1/y)[(4, - P®*) - (4,° - Pe).
8 8
- : *%
If the original equilibrium is stationary, E = E and po =p os ©, so
that the domestic short-term interest rate is equal to the foreign rate.
An increase in domestic interest rates over foreign interest rates

produces a temporary appreciation of the home currency.

Fiscal Expansion

Figure 1 shows the effects of an exogenous increase in
government purchases, with point A representing the initial equilibrium.
An increase in G shifts the IS schedule to the right, raising aggregate
demand above aggregate supply. This excess demand raises the price
level and reduces real balances, producing an upward shift in the LM
schedule. AS a result, domestic interest rates are higher than foreign
rates, and the home currency appreciates.

This appreciation has several effects which tend to offset the
initial impact’ on output and prices. First, it lowers the domestic
price of imports and raises the availability of imported inputs used in
production. As a result, there is an increase in the full employment
level of output. Second, there is a decrease in net exports which
shifts the IS schedule to the left. Third, the increased supply of
domestic output, along with the lower price of imported finished goods,

lowers prices and raises the stock of real money shifting down the LM


S2°0 * AdS93 + (T-)dSOWFI = dSONF

¥o193S ‘oTTand 3HL OL ‘ONIONS INVE-NON 30 WOLS (dS3) “£92
S2°O0 « 9913 + (T-)98TNA = STAT

0193s 2178Md 3HL OL ‘ONTONST NV 40 NIOLS (SETHI) = ° 292

0g93 - @193 = AdS34

¥YOLI3S IIWGNd 3HL OL SNIGNIT WNVE-NON NI 3ONVHD (AdS93) =“ 19Z
xe .

4343093 + “> x (8NI3)7130 - AOGSa - AdS93 - 43093 = 9813

(SL1I9) SONOG ANIWNYIAGD JO SI1IVS W101 (A199) *09Z

8Z/T_ :Q31VWILSA 25 = BON 8 SZ6T OL TD £96T *39NVY
2>°2 = MQ WN = SHIT NV3N 892° = “US'S 169° osud
(s°T) (2)
19290 * 24295" - (0d94S43 * WHdd3)130 * ZTIOO" +
(1'2) (t's) (eZ)
((2-)0dd)730 * Tz9ZZ2°T +# $99943 * 9STS6B" - (Od94S43 * MTYIIT9G * H6es00" +
(T">) (s°9) ww)
((T-)0d94S43 * (T-)83WN)T30 * Z2h600" -  O103 * £28065" + £94220°- = 4083 + AOUSS

SU3NSIZNOS AG 19830 YOLI3S orvend 40 NOILISINOV 13N (A0gsa) “652

wt

4830 YOLI3S I11GNd *D°III

- 65 -


SO/> :QR1VWIIS3 on 2 80N 18 fer ote TP te geet ?JONVYE

(8°£) TOS" = OHY 8Z°>- = SHI NVR 400° = esd
(95296 "4 (2644T") (9zosd2* + (98L26°S)

£B *# £T@H00° + 2B « 968200" + TB * G09Z00° - <O286°T -
(2082°9) (se¢0s"T)

3WIL * >T8900° + (Ode % NIFI9O] - (9BE"TTIZ * OOOT/S9E * TOIT )901) * £20050" +
e1es9°2)

COG * NIFISOT - C9BE*TIL * O00t/S9E * WOor - INSSWT)901) « 9OTOTT” +

&T
(Cae x NIF)907 - CHE * 37179907) x feveee: = (d¥o % N3FI907 - CINSOWT + dN9T)901

QAyRIOM SYNOH ATHLNOW 39VERAV (HE)

£270 ?WNS
sTe"z §20°0 (s-)
Ste"2 2£0°0 (2-)
sT8"2 2£0°O (T-)
sTe*2 s20°0 (o-)

4vis-1 143029V7 ov

si ALWWILST 08 = BON ob Z86T aed ge £96 ?J9NVa
496°T = Md 9¥S°@ = SHI NVBH 900° = “Y°a'S bsu2

(1Z22Tt"9)
(C(1-)310 907 % £29699" +

(2yete*s) (y@g02°2)
COCD)31e % CIIKCI90T) * T43099V1 + = BHIL * 612000" + 99620°T = (3799907

(CSUIWIOM DOOOT) ANSWAOTAWA (370)

sey *QaAYATIS3 ol = GON 28 £86T OL wt S26t_ ?3ONVa
te = = SHIT NV3H 200" = “Y°a°S sud

( 996560")
BWIL % 90-39228E°E - ((£-)dOdF/( E- 377901 * GOO +

(206 °62)
((2-ddOdr/( 2-317) 907 * TO + CC T-)dOdF/(T- 910901 % Z°O + (dOdP/3IF 901 * £°0 + 98950 T- =

(d0d07410 1907

CSNOSY3d 0000T) 39404 YOEVT (477)

s8/> *daLvHIIs3 2S = GON. 2d set H, ve, O46T = 39NVa

(9°2) Tok" = ZOHY (%°%) 865° = OHY oS = SHT NVBH 259°2 = 228° = 8SYD
(8T99")
NOT ® 26220°T- = = dX3df - (%-)ME/00T * ((>-IME - MT)

SNTUNLOVANNYH NI iva 39M | ‘1uNOH (we)

“829

“259

"959

"S39

AN3WAOTGNA ONY S39¥M “@° AI‘

- Tet -


-90-

TABLE A-21: JAPANESE PRICE SHOCK

UNITED STATES

Real GNP (%)......-ece eens 0.0 -0.0 -0.1 -0.1 -0.1 -0.0 -0.0 0.0
Price Level (%)...... 0.1 0.0 0.0 0.0 -0.0 -0.1 -0.1 -0.1
Int. Rate (ST)(+/-).. 0.0 0.0 -0.0 -0.1 -0.1 -0.1 -0.1 -0.1
Exch. Rate (FX/US$)(%). 70.20 0.4 0.4 0.3 0.3 0.3 0.2 0.2
Current Bal. (US$,B)(+/ 0.3 -0.4 -1.5 -1.6 -1.5 -1.3 -1.0 -0.6
CANADA
Real GNP (%)........-e ee eee 0.0 -0.0 -0.1 -0.1 -0.0 -0.0 0.0 0.0
Price Level (%).. 0.1 0.0 -0.0 -0.1 -0.1 -0.2 -0.2 -0.2
Int. Rate (ST)(+/-).. 0.0 -0.0 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1
Exch. Rate (US$/C$)(%)..... -0.1 -0.1 -0.0 0.0 0.1 0.1 0.1 0.1
Current Bal. (US$,B)(+/-).. -0.0 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.0
GERMANY
Real GNP (%)......-.ee seen 0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.0
Price Level (%).. 0.0 0.0 0.0 -0.0 -0.1 -0.1 -0.1 -0.2
Int. Rate (ST)(+/-).. 0.0 0.0 -0.0 -0.0 -0.0 -0.1 -0.1 -0.1
Exch, Rate (US$/DM)(%)..... 0.1 -0.0 -0.0 0.1 0.1 0.1 0.1 O11
Current Bal. (US$,B)(+/-)... 0.2 -0.2 -0.3 -0.3 -0.5 -0.6 -0.7 -0.8
JAPAN
Real GNP (%).. -0.6 -0.9 -1.0 -1.2 -1.2 -1.0 -0.8 -0.6
Price Level (%).. » 14 #216 18 #217 °=#«2146 #215 14 1.3
Int. Rate (ST)(+/-). - 09 07 05 0.2 0.0 -0.1 -0.1 -0.1
Exch. Rate (US$/Y)(%)...... 0.1 -1.5 -1.6 -1.4 -1.4 -1.3 -1.2 -1.1
Current Bal. (US$,B)(+/-).. -2.9 -03 13 18 20 22 19 15
UNITED KINGDOM
Real GDP (%).......-.2-00ee -0.1 -0.0 -0.0 0.0 -0.0 -0.0 -0.0 -0.0
Price Level (%)... -0.1 -0.0 -0.0 -0.0 -0.0 -0.1 -0.1 -0.1
Int. Rate (ST)(+/-)... - 701 0.0 0.0 -0.0 -0.0 -0.0 -0.0 -0.1
Exch. Rate (US$/PS)(%)..... 0.5 -0.0 -0.1 -0.2 0.0 0.1 0.1 0.2
Current Bal. (US$,B)(+/-).. -0.1 -0.1 -0.3 -0.4 -0.5 -0.5 -0.5 -0.5

NOTE: Amounts shown are deviations from the baseline path.
(%) = percentage deviation from baseline
(+/-) = absolute deviation from baseline


-21-

III. Implementation of the Theoretical Prototype in the MCM

This section gives a detailed description of the structure of
the Multicountry Model and discusses some of the highlights of the
empirical estimation results. The aim of the section is to provide a
link between the abstract theoretical prototype presented in Section II
and the detailed listing of the MCM itself in Appendix 2. The focus in
this part is on clarifying the specification of the individual sectors
and equations. While conceptually the MCM follows closely the
theoretical prototype described above, much of the disaggregated detail
can be confusing. There is relatively little discussion of the actual
estimation results, which are presented as part of the equation listing
and largely speak for themselves.

The plan of this section is to describe in turn each of the
sectors in the standard MCM country model. In some ways this is the
same idea as in Section II, but here we discuss as much of the
disaggregated detail as possible. Also, we introduce the notation
actually used in the MCM, and make explicit the functional form of the
equations. For the sake of concreteness the discussion uses examples
from the German country model, which is listed in Appendix 2. The
construction of the other country models is basically similar, although

there are some important differences which we note below.


TABLE 6

Coefficient Estimates of Production Function

VARIABLES
LH/(CU*K) — (MGSNI-COL)/(CU*K) COL/ (CU*K) t
COUNTRY
Canada........-. 0.71 0.19 0.07 0.001
United Kingdom.. 0.71 0.15 0.04 0.003
Germany... . 0.60 0.17 0.09 0.004
Japan . 0.11 0.05 0.006
United States... 0. 0.08 0.07 0.002

= labor hours
capacity utilization

K = capital stock
MGSNI = imports of goods and services,
national income account basis
COL = oil consumption, volume
t = time


-86-

TABLE A-17: 4-CURRENCY EXCHANGE RATE SHOCK

Sustained 5% Appreciation of Four Currencies Against US Dollar

UNITED STATES

Real GNP (%) 0.2 «0.3 0.2 0.1 0.1 0.1 0.0 0.0
Price Level (%). 0.2 0.3 0.3 0.4 0.5 0.5 0.6 0.6
Int. Rate (ST)(+/- ).. oe 0.2 0.4 0.5 0.5 0.5 0.6 0.6 0.6
Exch. Rate (FX/US$)(%) sees “4.8 -4.8 -4.8 -4.8 -4.8 -4.8 -4.8 -4.8
Current. Bal. (US$,B)(+/-).. 2.9 4.5 3.2 3.2 3.5 3.2 2.8 2.3
CANADA
Real GMP (%) 0.0 -0.6 -1.1 -1.1 -0.9 -0.8 -0.7 -0.5
Price level (%). 71.2 71.3 -1.5 71.9 -2.4 -2.9 -3.4 -3.9
Int. Rate (ST)(+/- ). 0.2 #02 O11 0.0 0.0 0.0 0.1 0.1
Exch. Rate (US$/C$)(%). . 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0
Current: Bal. (US$,B)(+/-).. 0.6 #013 0.5 0.6 O.7 0.6 O15 0.5
GERMANY
Real GNP (%) 0.1 -0.3 -0.7 -0.5 -0.4 -0.4 -0.3
Price Level (%). -0.9 -0.9 -1.1 “1.4 -1.7 -1.9 -2.2
Int. Rate (ST)(+/- ). -1.1 -0.3 -0.5 70.8 -1.0 -1.1 -1.3
Exch. Rate (US$/DM)(%). : 5.0 5.0 5.0 5.0 5.0 5.0 5.0
Current. Bal. (US$,B)(+/-).. 0.8 #O.7 0.6 0.8 O13 -0.2 -1.0
JAPAN
Real GNP (%) 70.6 -1.2 -1.3 -1.1 -1.1 -1.1 -1.0 -1.0
Price Level (%). -0.2 -0.3 -0.5 -0.6 -0.8 -1.0 -1.2 -1.4
Int. Rate (ST)(+/-).. 70.2 -0.4 -0.4 -0.4 -0.3 -0.4 -0.4 -0.4
Exch. Rate (US$/Y)(%). - 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0
Current: Bal. (US$,B)(+/-).. -1.2 -4.5 -5.5 -6.3 -7.2 -8.0 -8.9 -9.8

UNITED KINGDOM

Real GIP (%).. . - (01 -0.2 2 0.2 0.2 0.3
Price Level (%). - 71.0 -1.2 4 -2.1 -2.2 -2.3
Int. Rate (ST)(+/-). - 70.4 -0.4 -0.6 -0.8 -0.9 -0.8
Exch. Rate (US$/PS)(%)..... 5.0 5.0 5.0 5.0 5.0 5.0
Current: Bal. (US$,B)(+/-).. -0.1 -0.9 -1.8 -3.0 -3.6 -4.2

NOTE: Amounts shown are deviations from the baseline path.
(%) = percentage deviation from baseline
(+/-) = absolute deviation from baseline


yusar =  * (uSt)130

SU3NSIFYO4 OL SFILITIGVIT SNDINVENON WHIL LYOHS JO YD0LS OUST)

@aisr + @dyir + OGNV3r - dv4NOr ~ = »LSOr

SU3NOIZNOd OL SAILITIGVIT ONINYENON WY3L AMOHS NI JONVH: OUSOr)

Taisor - saLsor = @ausr
43N - SY3N9IIYO4 NO SWIVTD SNIWNVE WHAL LYOHS JO WIOLS (aausr)

~ £80 -

029

"699

*899


-32-

In addition to the aggregate goods trade equations, this
sector contains equations which explain imports of petroleum. There is
a demand function for oil consumption of the general form:

1og(COL) = ag + log(GNP) + ag 1og(2POtL

where COL is the volume of oil imports, OPOIL is the price of oil (the
average OPEC contract price), GNP in real income, P is the price level,
and EI is the exchange rate index (dollars per unit of local currency).
The unit income elasticity of oil demand is imposed in estimation.

The volume of oil imports is derived from an identity,
assuming that domestic production, stockbuilding, and exports are all
exogenous. This identity is equation 378 for Germany. The value of oil
imports is obtained from a quasi-identity (equation 379), which links
the value series to the volume of oil imports times the oil price
expressed in local currency. German imports from OPEC are assumed to be
a fixed share of German oil imports (equation 380). Oil imports from
non-OPEC countries are added to total imports in equation 384; an
exogenous adjustment factor (GMGVADJ) is subtracted from the total to
avoid double counting. This procedure ensures that when the model is

simulated, changes in the oil price will affect the value of. imports.

Exports of Goods (Sector II.B.)
The goods export sector in each country model is quite

limited, containing only the identities and bridge equations needed to


SZ°O * 141103 + (T-)1d173 = 14173

SU3NSTIUOS OL Peritarcral OT104140d SLVAIUd 30 3001S | (74173)

S2°O * 3d1103 - (T-)9d173 = Id113

SU3NST3UOd NO ‘SHIVID OT104140d BLVAIYd 40 WIOLS (3d113)

ONTONVNIA WwIaTss0 30 39NVIVE (4003)

SWIQUGS3 + VYON3 + 901103 + 101703 + Ivaunoa + SVING3 - = dv4JNGa

CALTANaGT | ‘d0@) MOTa1NO Witava *ATad 13N Cavanaa)

82/1 _?031YWILS3 25 = BON $8 SZ6T OL TD £96T *FONVA
98° = Md WN = SHTNV3N TZO° = “u'a°S S9° = BSYD

(9's)
(dd93S33 * 1843)130 * @59200° -

(972) (s°2) (9°2)
daIa x 2>00T" + G24S043 x G862Z0° + (Gd94SS3 x (T-)NTS/(( 1-)UTa - Y3IIDITIG * 22THTO" +

(179) cttZ)
(dd94S43 x G34)7130 x 6£0TOO" + sez7sSS°"- =- 141103

00°0 ovs"o
oos's YN YN (s-)
ooz°T YN WN )
000° oos"s £80°0 (-)
009°2 002 "s £s1'0 (2)
ooZ's 10" 29T'O a)
000°s oor's £st'o (Oo-)

AWiS-1 243099V1 ivis-1 1430391 ov

82/t ‘QALVWIIS3 25 = SON $8 S461 O1 TD E961
(VN) SSZ* = OHY WN = SHTNV3N SST° = “u'a°S 209

SNe
bSuD
COCIVSNMNG % CC 1)T8S3 - CIIMTH9))1390) * 253099V1 +
(o°2)
CCCT-1)A9X39)1390) * T430I9V7 + = (( £- )VSNMNZ % (s-)Wads3 + 11130 x TSTOOO" -

C 19) ts")
Tbtzaga * TosSbz* - (2-)VSNMNG3 * ZbZ0TO" - s868Z20°- = IdL 13

SW3NSTIUOS No SHIVID | OT10314N0d Waal | ‘9NO1 NI 3ONVHD (3417

((1Mdd033 - SYd3) - dX3d3 ~ VISUR) * £0°O + (( T-)Td3/( T-)1M4d39)901 = (M343939)907

(SMO13 Wildv3 BLVATYd 13N) ava SONVHOXa “SAV "1M (Ma

“L0E

"905

“s0E

"sos

"20g

‘SMO13 W1IdV3 Y3HLO *a°A'F

-19-


002°0 092°2- 006" 9T0°O
oos"0 6Lo°T- 00b"s %20°0
006°0 225°0 00b"s £20°0
006 °T 106 * = 00o"s T90°0
o0s'*T oIs's 006"= 660°0

AWIS-1 2330991 dvis-1 143039V7

82/1 :O31VWILSA 09 = GON 8 SZ6T OL TD T96T *3ONVU
Ts*T = Md WN = SHT NvaH TOO'T = “Ya°S 2byb° = BSUD

(2't)
ToIdd * 6269E°T - = ((1)N99/T) * 249090V1 + = (((T)MNN)T90) * T43099V1 +
ce") ce") ('2)
92290 * Bb6062° +  OBOTAGD x BBLS" - HI69AGD x 6S6TO°T +

("td (9°2) (vane) (99)
T289A0d * 204600" + 951590 x TZ09z°T - 9£590 x Se9SO'T - (TUN - 199/130 * ZIe6es" +

cr) cs) cs") (6) “wD
22290 x ZeESSI° + 0) x STeb0f° + £bx 199202" - 2b 292925" - Leesh"e- = 141109

SUINOT3UOS OL S3LLTIIGVI OT1041H0d WUIL-ONOT NI 3ONVHD (141109) “SST

SL/T *GaLWHEISS 09 = GON > SZ6T ot w, T96T :3ONVY

CM) 622° = VN = SHT NV3H ZT" = ‘u° 280° = 8SUd
(UT)

Tela * 2yoZ9T"  -
ts") £'2)

(47014309)130 x (s£2Z90 - T) * T2TZ00" + = ((199)730 - (TUNITIG) * B9HTET” +
(2° : (Ut)

£2290 % HO x HOTIOT” - ££2790 x £b x B9BHDO" - £52790 x ZB x BBzB60° +

(oT) cz") (eT) (27)
bd * 268260" + sb x bhe6TO" +# 2b % HIL9TT” - 95ZTLO° = (T-) * 3d1109

SUINOTIUOI NO SHIVID OTT041U0d WHa1-ONOT NI JONVHD (Dd1109) “2ST

PaVGNOG) + FavYdSD + VXOND + SV4NGD - 01109 + 101709
+ Od1109 + 1d1109 + ANVUIND - AOSHI - AASHD - ASHI - ANVULXD + AOSXD + AASXD + ADXD = dV4NGD

S1aSSV " NOTSUOS 13N | NI 3ONVHO ¥od G3A10S - ALLIN3GI dO@ (dV¥JNGD) “TET

4aNID + (dXIdN + SUN - dX3dd - SUD) * £0°O + ((T-)TAI/(T-ITANIZOT = (439)907

(NOILISOd 1assv NOT3UO4 13N weal LYOHS O3LU3ANI) SLVY JINVHIXS (439) “OST

SMO1d WailIdV3 Y3HLO *9°ATMD

-z7-


-18-

schedule. These effects are presumably of a second order of magnitude,
so the initial equilibrium is at a point such as B.

The rise in domestic interest rates also has important dynamic
effects on investment demand. The real long-term rate rises over time,
as the change in the short rate works through the term structure and as
the drop in the price level affects inflationary expectations. The rise
in the real rate lowers investment demand, and therefore lowers the real
eapital stock. This reduction tends to offset the positive effect on
supply of the exchange appreciation, and over time the increase in

output tends to be "crowded out."

Monetary Contraction

Figure 2 shows the effects of a decrease in the money supply. The
initial equilibrium is at point A. A reduction in the stock of money

is reflected as an upward shift in the LM schedule. The temporary
equilibrium is depicted by point B, which shows that the interest rate
is higher, and the level of output lower, relative to the original
equilibrium. The fall in output reduces prices, which raises real money
balances and tends to offset the initial shift in the LM curve.

At point B, there is an incipient capital inflow that
appreciates the domestic currency which gives rise to several effects.
As in the case of the fiscal expansion, this appreciation makes domestic
output less competitive, shifting the IS schedule to the left. (This

shift tends to be offset by the reduction in the overall price level.)


S8> 8b

99>

zo

S%> 22> LEE OLE
126 G68 £68 Toe 222 289 89% $94 S55 Heo TOE ILE

Tle 989 £49
68> 6£>b G2> 68E BE ORF OLE GLE SLE 24E TLE HEE EEE

S26
269 169 06> 8b 996 TS> 05> bbb Shy Lis OLE ELE O2E

= oI -

oly

oly

st)

£9

995

oly

oss
29s

g9s
Ted

Sle
ast

bly 65 SIE 4S  AdNVdIWD
61> S9X SE ADNVYLKD
TO 66£ LOE SOE AASHS:
G6 £6 AGNASHS:
G6 265 AGASHS
Bor L6t ASHS
LOE 96 AOSHS
T0b 665 96E T6E AdOSHS.
91> T0b 662 96F
et PaVASHS
665 B6E SBE HEE
265
004 662 SAINSOWD
88> Sb 006 fbz AINSSWS:
206 T0b SINSOWS
oS> 8Ib 205 Ts It
OSs — YHSAOSHS.
BE OBS 6LE A1OSWS,
ale ua T09NS
926 o£ BLE Te9NS
10> SBE 6st
99> YSNN19
8£>5 = -YN34I19.
£9) 19d
59> % 295 SgE 419
99> 89% 29%) 195 319
Ilo 69> Ose udyD
Tl OL LEE YNdy9
Elo IL £55
Lh 6S IIy9
Elo 2L> Ey)
Elo 99% S59 ObE
zag 19s VSNAIIS
19g S9E 255 AIIS
ggs ISS YSNIIS
ES <oF Tbs Ost 119
£95 S9E OSE VSNAAIS
obs AdI9
69> Los BEE uddI9-
OL> Loe LEE uNd4dIS.
Sos Los <i Tos dd
"95 295 WSNASIID
OSE Obs HF THE 9419
6S SHE OFF G)
£95 19S
Oz LId Wwasso
Sl>  MINVUSS.
92% YNINVYSS
09S Ss SbE. bE WSNAGNSD
ESb bos Ss Ize AdNSS-
89> 495 LOddNS9-
Le SLE 2LE SOE
Teh 2b5 dNO9
Zoe Tee LEE O2E NSS.
6Ss S8Sy
9s £95 WSN4I3099
Ly Sib 1
T9E Soe Tbs
00s seb M4Su49.
56S M14Su49.
£05 S0> M94SY49
S65 88> ISb GMAXd49.
80S 056 bbb ML4xXd49.
66> TdNId49,
664 86> L165 MddNOdd9
Tos of 0% —4dN9d49.
66> 86> <B> dX3N9dd9
96> £05 Tos Madi9
bob g2b OMNIS
8 8b soe 149
seb 4v0149,
905 90%  1L4AdNd49.
G05 £05 MLddNDI9
9% 65> 82h G2 9
205 90% M34N349.
18> S05 Es
68> S8b £05 Tos M4u39
2405 08> 05 M4439
295 2409 Tey 06>
Oz STE SIs LE 439
806 206 S06 252
£2E S6T HST 2ST 139
88> 8b S2b 439
lb 9Lb 30939
18> 8b oaNv39
Sb 82> 109
992 S9E  SNAJMNGS
18> 98> d¥4Nd9-
6b 266 isv4nao
U3ENNN NOILvNda | JTEVINVA


-55A-

(1) U.S. FISCAL SHOCK

U.S. GNP (%) 2.0 1.7 1.2 0.8 O.5 O.1 -0.2 -0.4
U.S. Prices (%). 0.2.06 21.1 1.6 2.0 2.4 2.7 2.9
Foreign GNP (%)..........4. 0.4 #0.6 O.6 O05 O04 O04 O13 0.3
Foreign Prices (%)..... sees 0.2 #04 05 06 08 O99 1.0 1.2
(2) JAPANESE FISCAL SHOCK
Japanese GNP (%) 1.3 1.30 #1,.2 1.2 #11 #11 1.2 1.2
Japanese Frices (%). 02 #05 0.8 1.0 1.2 1.30 £15 1.7
U.S. GNP (%).. . 0.1 0.1 O12 0.0 0.0 -0.0 -0.0 -0.0
U.S. Prices (%).. 0.0 40.1 Of2 OFf2 0.2 O12 0.2 0.2
(3) GERMAN FISCAL SHOCK
German GNF (%) 1.3 1.31.2 1.0 0.7 0.5 O13 0.1
German Prices (%) . 0.1 #0.3 0.6 0.9 1.30°1.7 2.2 2.7
U.S. GNP (%).... . 0.1 #O.1 O12 0.0 0.0 -0.0 -0.0 -0.0
U.S. Prices (%).. . 0.0 40.0 O14 O01 0.2 Of.2 0.2 0.2
(4) JOINT FISCAL SHOCK
U.S. GNP (%) 2.5 2.2 1.5 1.0 05 O.1 -0.2 -0.5
U.S. Prices (%). 0.3008 15 21 2.7 3.3 3.7 4.0
Foreign GNP (%).. 17° «21.9 1.9 1.6 $1.3 1.1 09 O08
Foreign Prices (%).. 03 0.8 1.2 #17 2.3 2.9 3.6 4.3

Notes to Table:

(1) Sustained increase in U.S. government purchases equal to 1% of GNP.

(2) Sustained increase in Japanese government purchases equal to 1% of GNP.
(3) Sustained increase in German government purchases equal to 1% of GNP.
(4) Srcitained increase in 5-Country government purchases equal to 1% of GNP.

Amounts shown are percentage deviations from the baseline path.

Foreign GNP and price variables are non-U.S. 4-country averages using
multilatera] trade weights and constant exchange rate conversion factors.


ANSWdC/ASHE =

‘$39Iud 2261 bd ‘SIMONI ‘SG009 3S3NVdVF WWLOL (SWC) “25S

War % GASHE = ASHE

SISVG dO@ - S1UOdHI SGO0D 3S3NVavr 1V101 (AQMP) “95S

S8/y =G3LVWILSI 98 = GON d Z96T ot 20 1p6T +3ONVE
(9°£) 99S" = OHY S8E"2) = SHIT NVBH 22°T = ‘ud = bsud
(400°902) (2696°T)
CALCH % Y4TIC) x 586° + = L2825°- = GASH

CALTINSGI-IS¥NB) SISVa OG-SLNOdN S0O0D 3S3NVaVE Tv10L (GASH) “SSS

AUCH + ASP + ASCH + AICN + ANH = ALCH

CS" §) Stsva 100 - Si¥OdNI S000 3S3NVdvr TV10L CALE) 1955

AZCH + AOCH + AICH + ATCH = AUCH

US'n §) GTWOM JO 1834 HOU SLNOUNT aS3NVaWe CAI) “E55

?HNS
oTe"0 (s-)
66'0 (od
Ost‘T (£-)
sts‘t (2-)
oTb'T (1-)
262°0 (o-)

ivis-1 143039¥1 . 9v7

S8/> ?Q31VWIISI > = GON 8 Z86T OL a eet, s39NVE
(9°2) 882" = OHY SE9°OT- = SHT NV3N S80" = ‘Y°3'S sud

(T806¢°T)
<b x LZITos0"  -

(Ts6ets* (8yb024"
2b * 210600" - bx ZTZOTO” + (CCC III * (LIdP)/( 10839 % CLIANSXd9)901) * T43099V1 +
(6260°T2)
CANSP 1901 + T9Bb°TT- = ( (839 % ANSXd9)/A9DPHISOT

c sn Py ANYHIS | woud ‘S1YOaNT ‘S009 3S3NVdvr (ASH) =*2SS

- OT -


9D + YNdND + Ud!

»

wioL - 9018 | Witava ‘sous On)

UNdND + WdtD = dD

BLVATUd - 9001S WAIdvd SSOuD (a0)
/9419 + (1-399 * (4/9498 - 1) = 9x9
INSWNUBAD - YO01S W1Tdvd SSO¥S (99D)

S*0%*(4/90°O - T) % S/NdAID + (6790°0 - T) % CT-)UNdND =. UNdND

S30IUd 2261 - Wildvd IWIINSGISY-NON SIVAIud 13N 40 NOO1S (INGNO)

‘S°Oxx(5/00°O - 1) % b/ddID + (6/40°O - T) % (T-)8dND = Yd

saoTud 226T - Witava | WIIN3GISIE BAvATYa BN | 10 O01S (aaya)

990°0 ?HNS
oTZ'T 90 (1-3
298°0 220°0 (co-)

ivis-1 143099V7 svi

18566") (£2se@b") (9sebls")
(xb x i23s00- + 2B S20200° - ITB x S96T00" -
(49Z29°T)
AWIL * 296000" + (CCID * 6°86)901 - (29SZE"2 * OOOT/S9E * (1}1099)901)) * T43099V1 +
19602")
COND * 6°869901 - (295ZE°2 * O00T/S9E * 1099 - INSSWI)901) x sstset" +
(990T‘OT)
COND * 6°86 1901 - (266T°6E * 419)901) * HZBTIZ” +
(6zT6o")
(OD * 6°86)901 + S60HG2°- ) dX3 + INSOWD - = LOddNOD

CNOILYNOI HID NI G3LVWILS3 SIN3I9I44309) dNO TWILN3LOd (C1odena3)

¥Y3NI9 + ((10ddN997dN99)907)730 = ((N99)907) 730

aLVa NOILVZITILN ALIDvdv. (naa)

“£27

22

“T2t

‘ozt

“6It

“SIT

SyO01S ‘WAIdVS W3eu ONY ALIWd¥ 3°AI*

- 62 -

on


s8/> go sewNTIS3 ie = LON oo oe 2eer StS 200 TET ?39NVa
8To°T = MO 680°T = SH1 NV3H sud
(9625°2) © (9bE6°ZT) (929269")
(1-)A33X ® ETSTET” + AITX * 962986" + SHE9TO'- = AZIN

(SNS) "W'N WOUS SLYOdWI SG009 NVIGVNVD (A32W) “9b

$8/> *031VH!

i11S3 28 = GON 2 2067 OL 2b T96T *20Nve
26Z°T = Md 299° = s

‘SH1 NVBH 890° = "4y°3" = BSuD

(T£290"s) (£9%2°$T) CeTs92T")
(T-)AIS8X * £69012" + AISK x SOSBT6* + 929T00" = ASI

(SNS) ANWRI39 WOUd ‘SAMOMNT | ‘$0009 | NYIGVNYD | (98) “Sb

S8/> = :G31VWIIS3 46 = GON 2eer ‘on 2B T96T =39NVY
ToO'2 = Md 02°T = SHIT NV3W 160° = "Y'3"S 266° = BSUD

(LE9T6°2) (26 °TT) (4661T")
(T-DAICX % LozTeb" + = AX * S0299° + =096ZT00" = OAPI

(Sns) N¥dvr woud ‘S1WOgHT | ‘$0008 | NYIGYNYD Or:

s8/> wasayntssa 48 = GON % Z96T gS 2b 19 ret ?39NVa
2o0°T = = SHIT NV3H $59" = ‘ya's sud
e9ses's) (6SZT*0T) (21299°9)
(T- AEX (H5eet* + ADK x 2Z6T@S” + S£6TTZ' = AWM

(CSns) GTHOM JO 1S3u Wous ‘SLMOGNT ‘$0008 | NVIGYNYD | (CAS) “So

UYIATOSHD + (TOSWd * 109W3)9071 = (ATOSNI1907

BNA - ‘SAYOHT | 10 (A099) “ay

¥YITOSHD + 70BI - BSAVA/(10S9)130 + 1O9SXD + 1099. = TO9KD

(ag) BANIOA - ‘SLWONT 310 Coan) “Tb

BZ. fagawuLisa 09 = GON 8 SL6T a TO_T96T =39NVE
os°T = VN = SH1 NV3H £92" = “Y'2 Tes’ = 8SYD

(>) 8°0s) (>">)
(C139/9XaM0¥ 37d 1901 % 205062" + (dN3dI/VSNAdNSI)901 * isees" T + £B x 69ZEsT° -

(6*) (6°2) (9°s2)
2 % 2b6520" + TB x SLOBB80" - 96609°S- = (SXdMOU/(U32 * ATOOND - AYN) I901

(SNS) GTYOM 40 1S7Y WOU SLYOdWI SG009 NVIGYNYD (AU) “Oo

-st-


ANVYLXN + TvEsn + Iveon = IvasNon

(aoa) 3oNVIva INN Jo¥ INZBUND CIvEErion?

UBINSXN + INOSXN + I4SXN = INSXN

(SISva VIN) S39Iud 2261

‘S1dI99IN JITAYIS WALOL (TI d

UW3NOSXN + INSOXdN/AINOSXN = INCISKN

(SISva VIN) S¥9Tdd 2261--S1dI399Y JOIAMIS UIHLO CINOSXN)

UANISSXN + (I4SXdN * OOT)/AISSXN * OOT = I:ISXN

(sisva VIN) S39IUd 226T-

-S1dI393Y 3WOINI YOLIVS (1asxn)

UFINASXN + AINOSXN + AI4SXN = AINSXN

( SISva VIN) S39Iud IN38uND--

- 6ST -

S1dI393Y ADIAWIS W1LOL (AINSXN)

"LOL

“98

"S8Z

“282


%/IA9VANN + %/9VANGN + (T-)SVINN = SVINN

SLISSV NOIZNO4 13N WIIT4IO 40 NIOLS (SVAINN) “068

SLNSWAVd 40 JONVIVE GNV NOTIN3ANSINI WIITSIO “IAN

= ost -


BISKD + (CASXIVATOSXD - T*KANSXdD *% ( ASKI/ATOSXS 19 109Xd9 /ASXI = SKI

‘$39Id 2z6t ‘S1U0dx:

98/> :G2LVWILSA 69 = GON 8 2961 O1 ZB S96T *39NVE
998°T = MO Sze°Zs = SHT NVBN 209° = “Y°3°S 666° = BSYD

(629°092)
COVASXD - 3D * AIOSXD + ALIX * 659296" +
(622te-T) (£TS26°T) (S90T9°2)
£b * G6ZTSZ° - 2B x T9BB9E" - 49806" = UY3D * ASX

(ALIIN3GI Isynd) $39Iud *YNd-SISva doa - ‘siuoaxa ‘$0008 “NYO WoL (ASX)

ABIX + ANIK + ABIX + ADIK + ACIX = ALIX

S321dd IN3WND - SISVE 100 - ‘S1BOdxa | ‘$0009 | NVIGYNYS | Wwiol | (A13x)

os/T - gabvarisa 6> = GON TB O86T OL TB 896T *39NVE
(WN) 2902" VN = SHT NVBH SOT’ = ‘W"3°S £26° = BSYD
(6s*2) (19°98)
(T-)A9IK % T2Ebs" +  ADIX * SZ7690°T = AION

(ALLIN3GI-ISvnb) ssn = ANWRRIS OL ‘S1UOdX3 | NVIGYNVD | (A99x)

43A10SXD + (109Xd9 * 109X3)9071 = ‘(A109x9)907

ana - ‘Siuoaxa | 710 (A103K9)

$0009 40 S1¥Odxa a

“oS

“2s

“1S

Ps ah)


2/((1-)d14N + d14N) = SAvd1dN

(SAV GOTYad) SY3NSI3INO4 OL S3L1T1avI1 BIVATUd (9AVd1dN) = * 288

2/((T-)d34N + d34aN) = SAVdIIN

CAV GOT¥Id) SUINOTIYOI NO SHIVID ALVATYd (SAVdoaN) “988

$/9140n + (T-9914N = 914n

(GOI¥3d 40 ON3) SYaNOTINO4 on S3TIT11avI1 ‘INSWNUZA0S (sian) = “see.

/(80SVANON + Q10994GN - 9940N) + (T-)994N = 994N

“988

(GOTU3d 40 GNI) SUINOTIOI OL SLATIGVIT 3LVAIUd (d14n) “see

/d940N + (T-)d94N = d3sn

(OOTYad 40 GNF) SY3NDTINOS NO SWIVID JLVATYd (d9IN) “zeB

S8/> :Qa1WWIISa 22 = od 286T on TD S96T =39NVY
645°T = MO TSZ°@ = SH1 NV3W ben a ‘was $02" = BSD
(voT2t72) (192282) E°s) (2299°2)
(1-)914N * 694582" - WIL * 255626" + —(( T- OTI3N/0TI3NISOT x 2s" 2e2 - obLe*2>- = 91gan

SU3NOTINOS OL SATLTIIGVIT INJWNYIADD NI JONVHO (9140N) “Tee

wad140N + dv4NON x (S°0-) = d140N

‘SY3NOIZYOI OL S3ELI11avI1 BLvATUd NI 39NVHD (d140N) ‘ose

wad240n + dv¥4NGN * S*O = d3san

‘SU3N9ST3N0I NO SHIVID BLVATUd NI 39NVHD (d940N) “68

YvSdaN + OONV3GN + YOSVANGN - 994GN - 914GN + JIGgn - 1IGGN + IwauNon = dv4NGN

(AITINIOI dO) S13SSV NOT3UO4 13N 3LVATUd NI JONVHO (dVJNON) “8Ze

SMO1S TWLIdv9 U3HLO “aA

- BZT -


- oT -

(T-MNO + MNGN * SZ°0 = MNO

HLYOM 13N SLVAIUd (NN) “S22

dN % ON - AGAN = MNGN

HLYOM 13N J3LVAIUd NI 3ONVHD (MNGN) = “22

HL1V3M GNV SONIAVS J1VATYd “3°I'N


‘SU3N9IZH04 NO SWIV1D WY3L-LYOHS JIVAIYd 40 XOOLS
AVG Yad S13NxVA JO SNOITTIN ~ 4301S TIO
(Q3AOW3Y SLYOdWI) LINGOYd IWNOILYN SSOWS JO 3YVHS IIiS3IWOd
(CW4N3-LV4N03) IN3WLSNFOV NOILYNIVA ONY SNOILVIOTIV Yds
SNOLLYDOTIY UGS 4WI
SLISOd3d SSNIAVS
WOOLS W1IdVd G3XI4 LN3WNYIAOD SSOYD YO4 JLVa GYvISIO
Sao tats | NO SONVIVE INaWN
$321d_ LN3YYND - SWOINI 3J1GVSOdSIG :YOLIV4 v
$39IUd_ IN3MUND - SISVa VIN - S39IAUIS GNY SG009 40 S1uOdx3
$30IUd ZZ6T - SISVa VIN - S39IAY3S ONY S009 40 SLYOdx3
HLYOM 13N
S39IUd INIBUND - SISV@ VIN - S3IIANIS GNY SGOOD 40 S1YOdNI
$30Iud 2Z6T - SISV@ VIN - S39IAY3S ONY SGOO9 40 SLYOdNI
S301ud INIWUND - INIWISSANI 3X14 F1VAIad
S39I¥d INFVUND - INIWISIANI G3XI4 ANBHNUSADG
$391Ud JNIWUND ~
‘$391dd LN3YYNI - NOILdWNSNOD Suvatea 4OL: “fav WNOSV3S
NOTLYNDS BLva 1S3Y31NI NI honveaosra WOILSILVLS
UadVd ANVdWOD JINVNI4 AVO-06 - 31VY 1SIYZINI_WY5L-LYOHS
S3AN3S38 GININOIY
SUINOTINOS OL SATLIIGVIT 193410 WY31-9NO7 WW3Y 40 XD01S
‘SU3NOT3NO4 NO SUTV AD 193NTO WY31-9NO1 IWIN 40 HOLS
S3V3A OT - SGNO@ VOVNVD JO INSWNY3A09 - 31va 1S3X3INT Wu31-SNOT
(S3AN3S3Y GIMONNOT - S3ANISIY SS3IX3) S3ANISIY 339N4
(AWNIHON) IN3NOdWOD dNO WONS - ZLVWILS3 JO NONNa WNGISIY
(YSN) IN3NOdWOD dNO WON4 - ZLVNIIS3 40 YOUN TwNdISay
4IN3NOdNOD dNO woud > on tNTISS 4O YOUN IwNdIs3a
NOILINGONd TIO NVIGVNYD
O°T= 226F 7 ave NOTLVLINE avan¥ GOIY3d JNO 03193dx3
O° T=ZL6T = S39IAUIS JO SLYOdX3 YO4 YOLVIIIG
T=2Z6T_- X30NI_3NIVA LINN LYOdX3
00! 226T - X3GNI 391Yd LYOdX3 110
0Q°T=226T - X3QNI 39TYd WNIIONLId ITLSINO
43010 ONY 39¥ 40 SUYV3A ST - NOLLVINdOd NVIGWNY
0O°T=Z2Z6T - Sa0TAUaS 40 S1WOdNI YO4 YOLV14390
*T=2Z6T - 39TYd 1YOdWI TIO-NON
00° t 2Z6T_- X30NI 3N1WA LINN LuOdWI
00°T=2Z6T - SISVG VIN - YOLVI430 LYOdWI
00°T=2Z6T - X3ONI 391¥d 1HOdWI 110
00° T=226T - Soiviaa LONGOYd WNOILWN SSO¥D
NOILYIJNI 03193dx3
| 00. T=: Zeer - CVS) (OIAOWTY SLNOdNT) YOLVI4IG NOLidvOSaY IILSAWOd. LIITIdWI
. TLvAa X30NI J3TUd WAWASNOD NYIQWNYD NI_ADNdIYOSIO WoLSTLVIS
- 00 *00T=' Ler =. X30NI 39TYd- YaWNSNQD
TWANNY = NI 3ONVHD 39VINIDU3d
ava awn ~°73A37 Sowa NI 3ONVHD 39VIN3IUId
ALVY_TWANNY - TH NI 39NVHD 39VIN39U3d
BLVY WWANNY - dN NI 39ONVHD 39VIN39U3d
00°T=Z46T - YOLV1490 NOIiduosay
VOYNVD 40 NVG 3HL 40 SL3SSV Y3HLO
CVSN) S39T¥d INFWIND - HLYOM 13N
(WS) S39Tad IN3WND - HLYOM 13N
(VSN) S391Yd 226T - HLYOM 13N
(WS) S39TUd 226T - HLYOM 13N
(VSN) S39IUd 2Z6T - HLYOM LIN 1Vaa
(VSN) S39TUd IN3WYND - HLYOM 13N IWIINVNIS
S3ILIYOHINY AYVLINOW 3HL 4O NOILISOd .IN3WNU3ZA0S 13N
ANNOI3V_WWLTdV IN3WNY3A09 13N
SL3SSV IN3WNYIA09 40 4901S
SLISSV_NOIZNO4 LIN WIITI4IO JO YIOLS (WITYOLSIH) WAL
S3ILIYOHINY AWVLINOW JO S13SSV _NOT3YOd 13N 40 X301S
S$39IUd 2Z6T - SISVA VIN - S1NOdx3 _13N
‘SLISOd30 3DLLON

u

WLOL - SIN3WAVd Y34SNVUL
NOLLVNDA SINSWAVd 3WOINT INSWISIANI NI ADNVd3YISIO WOILLSILVIS
S39IUd INFWUND - SINSWAVd JWOINT LN3WLS3ANT
$391Ud INFWYND - SIN3WAVd SWOONT INAWLS3ANI_133NI0-NON
NOLLYNDJ SANAWAYd SWOINI INSWLS3ANI 193YIG-NON NI_AINVdSYISIC IWOITISILVIS
$39Tud IN3YYND - SIN3WAVd SWOOINT INSWIS3ANI 19380
$39IYd INSYND - IWLOL - SISVG dOd@ - SIDTAYIS JO SLYOdWI
$39IUd INSYYND ~ SIIIAYIS Y3HLO JO SLYOdWI
NOILVND3 SLYOdWI SG009 NVIGWNV NI ADNVd3YxISIO IWITISILVIS
$391ud IN3YUND - SISVG dO@ - SLYOdWI SGOOS NVIGWNVD W101
$39IYd INFYYND - S3IIIANIS ONY SGOOS 4O SLYOdWI
(VSN) S32IUd LN3UYND - SISVG VIN - SLYOdWI
(WS) S39Tud IN3NUNI - SISV@ VIN - SLYOdWI
a $39IUd 2261 - SISva VIN - SiuoaHT

YS) S39Iud 2Z6T ~ SISva@ VIN - SLYO:
NOLLVNOF SLYOdNI 310 40 3N1WA NI ADNVd34uISIG Wwanisnivis
BN IVA - SLYOdWI 110
NOTLYNDS SLYOdWI TIO JO 3WNIOA NI ADNYd3YNISIG TWOITLSILVIS
BWNIOA - S1YOdWI TIO
$33Iud 2261 — 1 20009 NYIGYNVD TWLOL
SUIN9II3NOS OL SIILTIIGVIT P Oriodieod SLVAIdd JO 4901S

NOLLINI43q

- 902 -

6ST 21s)
(90x4) os)
(90x43) wWoadvHs3
(90X3) ‘WwaNdsd
(90Xx3) ravaaso
as>
(90X3) SYS.
Wwasd
AGAAVSS
AINXAVSI
) INX4VS3
) MNJVSO
) AINHAVS3
) INW4VS3
) AddT4VS
) Ag4TAYSD
) AdNDAVSD
(90X3) Ad4¥S2
(90X4) wasud
‘su
S6 Ere)
19 101789
oL 901789
6 Bit)
6 4a2
(90x43) asada
(90x43) VSNS3UD
(90x43) ‘$342
(90x43) 1069
oT dd
SOT Sxd3
T AN9xd3
(90X3) yooxd3
(90x3) WuULaddd
(90Xx3) STdOd9
90T ‘SWd3
60T WIONHdS,
<0T ANDWdD
Zot INSOWdD
(90x4) ooudd
T dN9dD
got dXad
Chad WOU.
(90X3) - WAId3d9
Tot Iddd>
ZIT MHOd3
iIt dH3d3
26 THHOd
st dNSHIdD
66
(90x3) HLOD
isa VSNAMND
os ‘AMND
ee VSNUMNO
ss 9
os YSNDIMND,
62 VSNASMND
6 OND
(90x4) VYOND
OST
(90x3) ALOvOVAND
Ist SVAN
<8 INXL3N2
OND
16 2H
98 THO
(90x43) YaAASHD
AAS
29 AQNASHD
(90X3) YAQNASHS
4s AGASHS
6S ASHD
9! AOSHD
(90X3) ‘Y3ASW
6> ASH.
09 ASSHD
o9 SAINSIHD
so AINSSWD
99 ‘SNINSOWD
29 INSOWD
(90X3) ‘443A 10SHD
ATOSHD
(90x3) Yd TOSWD
Tb OSHS
os SKS
rad 14113

NOILVNDS | DINOWINN


~6-

1.
2.
3.
4,
5.

(15) Pq = Pg(PUC, Wy Pi» Y) supply curve of domestic
output
(16) P= P(PqsPme) price of domestic
absorption
(17) uc = UC(R, 6, t) real user cost of capital
(18) © = BCL) PL, expected inflation
(19) K = 6K.4 +1 capital stock
(20) WW, = p® = \(L-L) Phillips curve
=1 * ; +
(21) M, = Fai (Pay/P) imported intermediates
Exchange rate and balance of payments
* *
(22) Ee = i, - i, open interest parity ecndition
“e = 5e #e
(23) E- = Y(1nE - lnE) + P~ - P exchange rate expectations
s Ze. pe a) 3 +
(24) E =X-(p°- PL, jv(p° - P_4) long-run equilibrum exchange rate
(25) CAB = P - Xgg ~ EPTM + Mgg current account balance
(26) CAB ~- DNFAP - DNFAG = 0 balance of payments
identity
Notes

an asterisk (*) denotes a foreign variable

A(L), B(L), and C(L) are polynominals in the lag operator
Y and 4 are scalar coefficients

Fy(+) is the partial derivative of F(-+) with respect to x.
a dot over a variable denotes percentage rate of change


TABLE A-15: GERMAN EXCHANGE RATE SHOCK

-84-

1
UNITED STATES
Real GNP (%).......eeeeeeee 0.
Price Level (%)....... 0.
Int. Rate (ST)(+/-)........ 0.
Exch. Rate (FX/US$)(%)..... -2.
Current Bal. (US$,B)(+/-).. 1.
CANADA
Real GNP (%).........000005 -0.
Price Level (%)........--4- 0.
Int. Rate (ST)(+/-)......05 0.
Exch. Rate (US$/C$)(%)..... -0.
Current Bal. (US$,B)(+/-).. 0.
GERMANY
Real CNP (%) -0.
Price Level (%). -1.
Int. Rate (ST)(+/-)... -1.
Exch. Rate (US$/DM)(%) 5.
Current Bal. (US$,B)(+/-).. -0.

JAPAN

Real GNP (%)... -0.
Price Level (%). -0.
Int. Rate (ST)(+/-) -0.
Exch. Rate (US$/Y)(%)...... 2.
Current Bal. (US$,B)(+/-)..  -1.

UNITED KINGDOM

Real GDP (%) 0.
Price Level (%). -0.
Int. Rate (ST)(+/-) -0.
Exch. Rate (US$/PS)(%) 2.
Current Bal. (US$,B)(+/-).. -0.

NOTE: Amounts shown are deviations from the baseline path.
(%) = percentage deviation from baseline
(+/-) = absolute deviation from baseline

ANREE. DOWON OrPNNO AvyrPRHE

WOrRwWwo

-0.

-0.
-0.

-0.
-1.
-0.

-0.

-0.
-0.
-0.

1.

-0.
-0.
-0.

1.
-0.

NWONRUY COrRN PNNNE PUNHN

UONwWOo

-0.

-0.
-0.

“1.
-1.
-0.

-1l.

-0.
-0.
-0.

1.

-0.
-0.
-0.

1.
-0.

PORN FONFO ONvVUr FAWUNH

N@NFO

-0.

-0.
-0.

-0.
-1.
“1.

-1.

-0.
-0.
-0.

-2.

0.
-0.
-0.

1.
-0.

noorvo

FAWWH

ONNWN

NORPNE

woOUud

-0.

-0.
-0.

-0.
72.
-1.

“2.

0.
-0.
-0.

2.
“1.

DONWN

PRENNN Unror

oconon

COMUar

-0.
72.
“1.

0.
-0.
-0.

2.
el.

5
4
5
-0
0

73.

BPNN EU

NeOPrWO

PERE

NPoONYR

-0.
-0.

-0.

-0.
72.
ol.

“4,

-0.
-0.
-0.

-3.

0.
-0.
-0.

2.
-1.

NYONUN RPONOF OCUNHN Carre

UrPwoOr

-0.
-0.

-0.

-0.
-3.
-1.

75.

-0.
-0.
-0.

~4,

“9.
-0.

<1.

DUNAD DOWNY CUNNN FORO

ONFar


-37-

The German money demand equations are numbers 421-425 in
Appendix 2. In addition to time deposits, savings deposits and bank
deposits held by foreigners are also modeled; the functional form
follows closely the prototype specified above. The upper part of Table
3 reports the long run elasticities of demand for currency and demand
deposits with respect to income, for each country. The estimates for
these long run elasticities lie in the range between .23 and 1.35, and
are generally plausible and consistent with theory. The lower part of

the table reports the interest rate semi-elasticities.

Private Banking Sector and Interest Rates (Sector III.B.)

To complete the specification of the monetary sector it is
necessary to determine banks' demand for free reserves. This component,
plus the demand for required reserves derived from money demand,
generates the private sector demand for the unborrowed monetary base,
which is assumed to be the authorities' control variable, In the free
reserve equation two explanatory variables are used: the short tern
interest rate (RS) represents the opportunity cost of excess reserves,
and the discount rate is the cost of borrowed reserves. Free reserves
are scaled by net deposits at banks. The actual specification takes the
form:

RF
Nop 7% * 41 RS + ap RD


8Z/T faa .wHTisa 2S = GON + seer St a) E96T + ONY
ex°2 = Md = SHI NV3H 260° = 3°S 666° = bBSYd
(2°T22) (e's)
Miaa x 850Z20°T +* TSOTSZ*- = aa

31LVY TOSNOD 742/T-2 (183)

S8Z/T_ *031VWILS3 0S = GON OD s26t Oty =b £961 ?JONVE
<6°T = MG VN = SHIT NV3W £06" = 492 sud

(72) (2)
(CT-)G13)13d * ez9eZzZ" + = =(013)130 * 9S08ez" -

C (2"%) (
(0Y3)130 * 6H2zE92" + Cw1sua)130 * TeZsse" + (G3u)7130 x SZg6sT* + BE40TO°- = (0983)130

SINNOSOV 11S0d30 NNVE ONTUVII9 NOGNOT NO Jive (agua)

£22°0- Wns
oos "2 2%0°0- (x-)
oos"s 90°0- (Q-)
000° 890°0- a)
o00°T 290°0- (o-)

dvis-1 1430997 ov

?Q31VWILSS TS = GON ster ot 2b 59 £96T *39ONVY
295°T = M0 VN = SHT NV3H 965 bsa3

(2"%)
(1-)d30LF * 655260" + = ((T-I)VISHR) % T43099V1 +

(£79) (ts) (92t) (2)
9G1Na * BOS6ZE* - GIN x MHTTZT’ + SHI x BZEGZ°T + 6227575" = VWISUT

8Z/T_ :G31VWILS3 09 = GON 8 S/6T OL TD T96T *39NVE
2o°T = Md WN = SHI NV3W SST" = ‘US'S 966° = BSYD
(82) (1's) (6°29) (78)
(2-)Waada x 282000" + GIN x 66890" + Ga * 996TS6° + SET96S°- = SUF

ava 71a AMNSVIUL AV Té (S82

“ss2

*s52

‘S3LVa LS3YZINI ONY YO1D3S ON!

-ug-



HLOD + dOND + TVANGSD + S°O * (LOVSVIND + (T-)LOVSVIND) = NG

s39unos - 133K _ JONVIVE ova WU1N3ID (NED) «86

wna + dud + WY = Ned

S3SN - 133HS 3NVIVE NYE TVHINID (4Y9) °26

/dSNOD + (T-)dSND = dIND

‘S3ILIQOHLNY AUVLINOW 3HL 30 NOLLISOd “IN3HN3AG9 13N (a9ND)

S8/> :G31VWIIS3 68 = GON ob Z86T O1 Fb 09GT_+3ONVY
(67S) SoT'T = OWN 220°S = SHT NVBN 60T° = “Y°3°S 266° = BSYD

7S" bz) (1Z0995")
OOT/(GL9 x 89 + GD x V9) x Biz00" T+ SbTeso°- = wud

CALTINSGT ISvnO) SA¥3SIY GaWINDIY (wud)

"96

"G6

SFILIYOHLNY AYVLANOW “3° III"

= oz -

3


waddIN + (MO4ITdIINIDOT = (OTIGdIN901

or: a - (S1HOTIM ANSHLSIANI 193410) X30NI ‘gorud Y3NNSNOD NOTaOS (orradan)

SSS622 *Oxx«( T2TO%*T
% Iddd9) % 9S6S6T"Ox( 9OZZT"T % ddd) * 9bL0°Oxx( 92 "OTT * IdddP) * LTLOOS*OxxIdddd = MOdTdIIN

(S1HOT3M | ‘IN3HIS3ANI 193470) X3QNI 3oTud UBHNSNOD J9VUSAV G3LHIIIM NOTSUOS | (Maat. ind

4W3MGNIIN + (NI9)I901 * 2°0 + (NQF) 901 * 96T"O + (NIT)I9O1 * GZ0°O + (NID)901 * TOS*O = (MIGNIIN)SOT

(SIHSTIM INBWIS3ANI 193410) NOTLVZITIIN ALI3vavo NOT3¥OS (MIONIIN)

YFOTNIAN + (M99)901 * ZTE"O + (NII) 901 * STO + (NITI9OT * STH°O + (NIZ)9OT * TZT"O = (OTMINIINISOT

NOILYZITIIN ALIDVdVI NOIZXOS (OTMINIIN)

¥3X4NOIN + (MX4dND4INISOT = (WMXdN94N)9OT

(SIHSTIM 3OVEL WHBLVITE) ALIATLOV SIWONOIa NOTIUOS GTIOM (HMXGNDIN)

- 962801 “Oxx( TOTOST"O * dNSD)
% 96ZT" Ox 26858°T % dNOI) % SZBT*Oxx( 9FZTOO"O * dNOT) x LBZS°Oxx(S220°T * dNOD) = MX4dNDIN

(S1HOT3M 3OVUL WY3LVIIG) UNO JOVUIAV GZLHOTIM NOTIYOS (MX4GNOIN)

¥aL494N + (ML4dN94NI9O1 = (OT4dN9INI901

CSLH9I3M JOVEL WH3LVIILINN) dNS NOIZWOI OT-9 (OTIdNIIN)

SSLE°Oxx( TOTOET'O * dNOD)
 SbIZOxx( 26858°T * NDI) * LEbSbZ2°Oxx (9EZT00°O * ANOE) * 9ZH9T*OxK(GZ220°T * dNOD) = MLddNOAN

CS1HOT3M 30VEL W3LVIILINN) dNO 3OVYSAV G3LHOI3M NOIZYO4 (ML4dN9IN)

¥394N94N + (M94dN94NI9O1 = (OT9dND4N 1907

CS1HSI3M dNS) dNO NOIZXO4 OT-9 ( OTSdNIIN)

692TS*Oxx( TOLOET"O *
GNSS) % ST*Oxx( 26898°T * dNDI) * 9bTb°OxK( 9S2TO0"O x MNO) * LOZT*Oxx(GZ220°T * dN9D) = MI4dNOIN

(S1N9T3M dN) - dNS JOVYSAV G3LHSIIM NOTBYOS (Maganoan)

CS39VUSAV GALHSI3M) SITEVINVA NOI3XO4 “LIAN

- T8t -

"006

"668

“868

"168

"968

"S68

“£68

"268

“T6s


-91-

TABLE A-22: US PRICE SHOCK

UNITED STATES

Real GNP (%).......eeeeeeee 70.1 -0.3 -0.7 -1.1 -1.2 -1.1 -1.0 -0.8
Price Level (%). 1.2 1.6 1.8 1.9 1.8 1.6 1.3 11
Int. Rate (ST)(+/-).. 1.3 1.4 1.3 11 0,9 0.8 0.7 0.5
Exch. Rate (FX/US$)(%). . 0.3 0.4 O01 o.1 0.0 0.1 #012 0.2
Current Bal. (US$,B)(+/-).. 1.10 -1.5 -4.0 -5.6 -7.2 -8.7 -10.3 -11.6
CANADA
Real GNP (%)......seeeeeeee 0.1 -0.2 -0.8 -1.1 -1.1 -1.0 -0.8 -0.6
Price Level (%). 0.3 -0.0 -0.4 -0.9 -1.5 -2.3 -3.1 -3.9
Int. Rate (ST)(+/- 0.4 #0.8 0.7 0.6 0.4 #0.2 O.1 -0.0
Exch. Rate (US$/C$)(%)..... -0.3 1.2 2.1 2.7 3.3 3.9 45 5.2
Current Bal. (US$,B)(+/-).. 0.0 0.2 -0.1 -0.2 -0.1 -0.1 -0.0 0.1
GERMANY
Real GNP (%).....eeeeeeeeee 0.0 #O<.1 0.2 OFf1 0.0 -0.0 0.0 0.1
Price Level (%). . 01 £0.2 0.2 #0.3 04 0.4 O05 0.6
Int. Rate (ST)(+/-)........ 0.2 #01 0.1 #02 0.2 0.3 0.3 0.4
Exch. Rate (US$/DM)(%)..... -0.5 -0.7 -0.5 -0.5 -0.5 -0.6 -0.8 -1.0
Current Bal. (US$,B)(+/-).. -0.1 0.1 0.3 01 0.2 #04 0.6 0.9
JAPAN
Real GNP (%).......eeeeeeee 0.3 0.3 0.2 0.2 0.2 «0.2 0.3 «0.3
Price Level (%). 0.0 0.1 0.1 0.2 0.2 0.3 0.4 0.4
Int. Rate (ST)(+/- 0.1 0.1 0.1 0.1 0.1 0.1 01 #01
Exch. Rate (US$/Y)(%).. » 705 -0.6 -0.5 -0.7 -0.7 -1.0 -1.2 -1.4
Current Bal. (US$,B)(+/-).. 1.8 1.0 1.5 1.4 1.6 1.8 2.5 3.3
UNITED KINGDOM
Real GDP (%)......-.eeeeeee 00 #01 02 02 O01 0.1 #O.1 0.0
Price Level (%). 0.0 0.4 #0.4 0.5 0.7 «0.8 0.9 1.0
Int. Rate (ST)(+/- -0.0 0.0 «0.1 0.2 0.2 03 0.3 0.4
Exch. Rate (US$/PS)(%). . 0.2 -0.9 -0.8 -0.9 -1.0 -1.2 -1.4 -1.4
Current Bal. (US$,B)(+/-).. 0.4 O.5 0.8 #04 O12 0.2 0.4 0.8

NOTE: Amounts shown are deviations from the baseline path.
(%) = percentage deviation from baseline
(+/-) = absolute deviation from baseline


-39-

substitutes.) This implies that the long-term bond rate equals the mean
of the current and expected yields on short-term assets over the
lifetime of the bond. Assuming that expected future yields on
short-term assets can be roughly approximated by a distributed lag on
past short-term rates, we can model long-term rates as a distributed lag
on past short rates. The specification of the long-term interest rate
is then simply:

RL = ag + a4(L) RS
The German long-term interest rate equation is number 438. Some of the
other models also have a mortgage rate or other long-term interest rate;
these additional long-term rates are modeled using a similar

specification.

Monetary Authorities (Sector III.C.)

Equation 442 is the balance sheet identity of the German
central bank. Because the German authorities are assumed to set a
target path for central bank money (equations 443 and 444), the balance
shee: identity simply determines the change in base money (GOTHBB)

needed to reach that target.

Prices (Sector IV.A.)
Each MCM country model has three key price variables: the
export and import unit values (PXGUV and PMGUV), and the absorption (or

domestic expenditure) deflator (p).8 The basic specification differs

8pomestie absorption is defined as GNP less exports, plus imports. Unit
values are used because price data are not generally available for
traded goods.