**Pollcy, Research, and Erlernal Affairs**

**MUacroeconomic Adjustment and Growth**

WPS 486 Thispaper- ajointproduct of the Macroeconomic Adjustmcnt and Growth Division, Country Economics Departmcnt and the Country Operations Division, Country Departmcnt 1, Europe, Middle East, and North - Africa Regional Office is part of a larger effort in PRE to assist in the design and analysis of macroeconomic policies. Copies of this paper are available free from the World Bank, 1818 H Street NW, Washington DC 20433. Pleasc contact Sanjev Aggarwal, room, N I1-019, extension 39176(59 pages plus 105 pages of appendices).

To improve the Bank's macroeconomic modeling capabilities, the Country Economics Department is developing a continuum of macro models referred to as RMSM-X and RMSM-XX. These models share a common accounting framework that ensures economic consistency among economic sectors.

RMSM-X is the simplest model, with an elementary economic structure. The RMSM-XX more richly specifies the behavioral links among economic variables.

Everaert, Garcia-Pinto, and Ventura show in detail how to specify the budget constraints and market clearing conditions in a RMSM-X model for Turkey. They include six sectors: the Government, the State Economic Enterprises, the Central Bank, the domestic banking system, the nonfinancial private sector, and the foreign sector. The different markets consist of a domestically produced and exportable good, an importablc, a money market, a domestic credit market, a quasi-market for Central Bank Credit, and a foreign asset market. This model can be used to project the behavior of these sectors in a simple manner, linked through the various markets.

They explain four possible closurcs of the model. One choice depends on whether policy variables are exogenous (the positive closure) or targets on economic variables are given and policy variables are solved for (the normative closure). Under both closures, a second choice, depending on whether an external credit constraint or target is binding or not, is implemented.

The interaction of the projection model and a debt module is explained in detail. The debt module, which in the future should become automatically linked to the DRS, allows the user to experiment with different forms of debt restructuring in a simple manner. The debt module also allows to calculate the supply schedule for foreign credit and to project in detail (by creditor) debt stocks, capital flows, and interest payments.

Finally, since the model is based on the concept of a consistent flow of funds among all the specified sectors, it is necessary to build a consistent historical data set for at least the base year. Appendix I explains how such a set of consistent macroeconomic data was constructed.

The RMSM-X model presented in this paper will be extended to include more estimated behavioral relations (RMSM-XX) for future operational work on Turkey. Applications of the RMSM-X model have also been developed for Colombia, Zimbabwe, Chile, and the Philippines.

KThe PRE Working Paper Series disseminates thc findings of work under way in the Bank's Policy, Research, and External Affairs Complex. An objective of the scries is to get these findings out quickly, evcn if presentations are lcss than fully polished. The findings, interpretations, and conclusions in these papers do not necessarily represent official Bank policy.

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