
Inside a Modern Macroeconometric Model
A Guide to the Murphy Model
Springer (Publisher)
Published on 18. September 1995
Book
Paperback/Softback
XVIII, 424 pages
978-3-540-60027-5 (ISBN)
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Description
The main purpose of this monograph is to give a detailed account of a contemporary, state-of-the art, macroeconometric model that is regularly used for policy advising, and for forecasting in commerce and industry.
More details
Series
Language
English
Place of publication
Heidelberg
Germany
Publishing group
Springer Berlin
Target group
Professional and scholarly
Illustrations
75 figures, 85 tables
Dimensions
Height: 23.5 cm
Width: 15.5 cm
Weight
595 gr
ISBN-13
978-3-540-60027-5 (9783540600275)
DOI
10.1007/978-3-662-00771-6
Schweitzer Classification
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Inside a Modern Macroeconometric Model
A Guide to the Murphy Model
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Inside a Modern Macroeconometric Model
A Guide to the Murphy Model
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Content
1 - Setting the Scened.- 1 How to Use this Book.- 2 Distinguishing Features of MM.- 2.1 Overview of MM's relationship to other macro models.- (a) Size.- (b) Eclecticism.- (c) Relationship to macro and micro paradigms.- (d) Long-run properties.- (e) Specification testing.- 2.2 Main economic features.- (a) Dornbusch Model attributes.- (b) Lona-run optimizina behaviour in production.- (c) Feedback effects from assets.- 3 Principal Mechanisms in MM.- 3.1 Introduction.- 3.2 The Mundell-Fleming model.- (a) The MF model's equations.- (b) Monetary and fiscal policy under flexible exchange rates in the MF model.- 3.3 Dombusch's 1976 model.- (a) Basic assumptions.- (b) Underlying structural model.- (c) Partially reduced form.- (d) More on the underlying structural model - portfolio balance.- (e) Equilibrium exchange rate.- (f) Model consistent expectations.- (g) The effects of a monetary expansion under rational expectations.- 3.4 Insights from 1980s developments in open-economy macroeconomics.- 3.5 Synopsis of illustrative simulations with MM.- (a) Monetary expansion.- (b) The NAIRU and the neoclassical long run.- (c) Fiscal policy and public debt feedback.- (d) Private consumption and foreign debt feedback.- (e) Non-Ricardian equivalence.- 3.6 A highly stylized miniature model of balanced growth (HSM).- (a) Main assumptions underlying HSM.- (b) Production function and resource endowment.- (c) Capital accumulation and the rate of return; domestic inflation and exchange rate determination.- (d) Growth in capital stock, workforce, output and real wages.- (e) Intertemporal budget constraint.- (f) Balance of trade.- (g) Qualitative behaviour of HSM under parameter shifts.- (h) Growth rates of prices and of nominal and real magnitudes in HSM and in MM.- 3.7 Conclusions from this chapter.- 2 - Structural Form of MM.- 4 Overview of Part Two.- 4.1 Introduction.- 4.2 Notation.- 4.3 Nomenclature for equations.- 4.4 Estimation methods, specification searches and 82 hypothesis testing.- (a) General considerations.- (b) Data sources.- (c) Computing.- (d) Estim ation methods.- (e) Obtainina a preferred eauation.- (f) Diagnostic testing.- 4.5 Equation count and standard closure for simulations.- 4.6 Brief account of solution method.- 5 Wage Behaviour.- 5.1 Introduction.- 5.2 Technological change - basic ideas.- (a) Numerical example.- (b) Factor-augmenting technical change.- (c) Efficiency units.- 5.3 The role of Harrod-neutral technical progress in MM.- 5.4 Notation - Variables in wage equation SO3.- 5.5 Inflationary expectations augmented Phillips Curve.- Steady state.- 5.6 Estimated coefficients.- 6 Labour Force Participation.- 6.1 Introduction.- 6.2 Notation.- 6.3 Finding the underlying trend in the potential size of the workforce.- 6.4 Labour supply equation SO2.- 6.5 Estimated coefficients.- 6.6 Steadu state.- 6.7 Encouraged/discouraged worker effect.- 7 Private Consumption Behaviour.- 7.1 Introduction and notation.- 7.2 Equilibrium consumption - equations SO4A.- 7.3 Dynamic disequilibrium consumption equation S04.- 7.4 Steady state.- 7.5 Parameter Estimates.- 8 Behaviour of the Rental Price of Housing.- 8.1 Introduction and notation.- 8.2 Allocation of consumption into housing rental services and other.- 8.3 Dwelling rental price dynamics - within sample - equation S01.- 8.4 Steady state.- 8.5 Dwelling rental price dynamics - forecast period.- 8.6 Estimated coefficients.- 8.7 Behavioural identity 103 - consumption price index and identity I01, definition of real consumption.- 9 Production of Housing Rental Services and Investment in Dwellings.- 9.1 Introduction.- 9.2 Notation - Levels variables.- 9.3 Notation - Depreciation, interest, growth and inflation rates.- 9.4 Notation - Coefficients.- 9.5 Production of housing rental services - identity 104.- 9.6 The natural real growth rate - identities 171 and 172.- 9.7 Dwelling investment - equation SO5.- Present value calculation.- Expectations of investors in housing stock.- Steady state.- 9.8 Estimated coefficients.- Estimated risk premium.- 9.9 Some weaknesses of the approach.- 10 The Enterprise Production Block of the Business Sector.- 10.1 Introduction.- 10.2 An overview of the production structure of the enterprise economy.- 10.3 Preliminaries on the CES/ CET production technology.- Input-output separability.- 10.4 Lengths of run in MM and in the enterprise production block.- (a) Introduction.- (b) Concepts of length of run.- Short (or Keynesian) run of MM as a whole.- Medium (or classical) run of MM as a whole.- Long (or neoclassical) run of MM as a whole.- (c) The medium run of the enterprise production block.- (d) Parameter estimation of the medium-run neoclassical sub-model.- (e) The long run of the enterprise production block.- (f) Role of the medium- and long-run closures of the enterprise production block in generating the long run of MM as a whole.- 11 Business Fixed Investment.- 11.1 Introduction and notation.- 11.2 Expected present value of the net revenue stream.- 11.3 Tobin's (average) q ratio.- 11.4 Stochastic dynamic investment equation S13.- Steady state.- 11.5 Estimated coefficients.- 12 Business Sector Employment.- 12.1 Introduction and notation.- 12.2 Business sector employment equation S1O.- 12.3 Steady state.- 12.4 Estimates.- 13 Import Supply and Demand.- 13.1 Introduction and notation.- 13.2 Import supply under the small country assumption.- 13.3 Import deniand - introduction and notation.- 13.4 Equilibrium import demand equation.- 13.5 Dynamic demand equation for imports S09.- Steadty state.- 13.6 Estimates.- 13.7 Trade-weighted exchange rate index.- 14 Aggregate Export Supply.- 14.1 Introduction, notation and specification.- Steady state.- 14.2 Estimates.- 15 Disaggregation of Export Supply.- 15.1 Introduction; notation and specification for export compositional equation S06; its steady state.- 15.2 Estinates.- 15.3 Supply of 'other' exports.- 15.4 Supply of 'commodity' exports.- 15.5 Price index for aggregate exports.- 16 Overseas Demand for 'Commodity' Exports.- 16.1 Introduction and notation.- 16.2 Form of the demand equation.- 16.3 Steady state.- 16.4 Estimates.- 17 Inventory Investment in 'Commodity' Exports.- 17.1 Introduction and generic notation; form of the inventory equations.- 17.2 Inventory investment in 'commodity' exports.- (a) Notation for stochastic inventory equation SO7 and accumulation identity 107.- (b) Export 'commodity' inventory investment equation SO7.- (c) Estimates.- (d) Steady state.- 18 Demand for Non-'Commodity' Exports.- 18.1 Introduction and notation.- 18.2 Form of the denand andflexibility equations.- 18.3 Estimates.- 18.4 Steady state.- 19 Domestic Good Inventory Investment.- 19.1 Introduction and notation.- 19.2 Desired stock of non-farm inventories.- 19.3 Partial adjustnient eqqvation.- 19.4 Estimated coefficients.- 19.5 Steady state.- 20 Price Dynamics for the Domestic Good.- 20.1 Introduction, notation and specification.- Steadu state.- 20.2 Estimated coefficients.- 21 Sales of the Domestic Good; Miscellaneous Identities for Investment and Capital.- 21.1 Introduction and notation for identities 108, 109, 113 and 144.- 21.2 Demand for, and sales of, the domestic good, and miscellaneous identities.- (a) Demand determination of output of the domestic good in the veny short run.- (b) Public-private split of business fixed investment.- 22 The Government Sector.- 22.1 Introduction.- 22.2 General government sector spending.- 22.3 The public sector deficit -identities 135-138 and 145-149.- 22.4 Public sector portfolio allocation.- 22.5 Target publicdebt to GDP ratio and the tax reaction function.- (a) The tax reaction function 148.- (b) Steadu state.- (c) Calibration.- 23 Financial Markets.- 23.1 Introduction.- 23.2 Formation of interest rates - identities 131-133, Il 5-I17, 126.- (a) Notation for interest rate formation and uncovered interest parity.- (b) Expectations theoru of the term structure of interest rates.- (c) Inflation and inflationary expectations.- (d) Real 10-year bond rate.- (e) Long-run actual rate of return on business fixed capital.- (f) Definitions offoreign short- and long-term interest rates.- 23.3 Uncovered interest parity - identity 127.- 23.4 Two key exchange rates.- 23.5 Money demand - equation S16.- (a) Specification and notation.- (b) Estimates.- 23.6 Balance of pauments identity 151.- 24 National-Accounting, Stock-Flow and Miscellaneous Identities.- 24.1 Introduction.- 24.2 National-accountinq identities.- 24.3 Stock-flow Identities.- 24.4 Lead-lag Identities.- 24.5 Three definitional identities.- Appendices to Part.- 2.1 List of variables in MM.- 2.2 List of coefficients and parameters in MM.- 2.3 Classification of MM equations.- 2.4 Consolidated equation list.- 2.5 Concordance between original MM notation for variables and notation used in Part 2.- 3 - Simulations with MM.- 25 Introduction to the Simulations.- 25.1 Preamble.- 25.2 Use of miniature models in Part 3.- 25.3 Guide to Chapters 26 and 27.- 26 Monetary Shocks.- 26.1 Introduction and notation.- 26.2 Features shared with the Dornbusch model.- 26.3 Overshooting and undershooting exchange rates revisited.- (a) Inevitability of overshooting in DBM.- (b) Possible sources of different exchange rate behaviour in DBM and MM.- (c) Rigorous definition of undershooting and overshooting exchange rates.- (d) Reporting simulation results for the exchange rate as deviations.- (e) MM's undershooting exchange rate.- 26.4 An extended Dornbusch model with inertia.- (a) Inertia in the IS curve.- (b) Solution sequence for the extended DBM.- (c) Form of the lag distribution for aggregate demand in the extended DBM.- (d) Factors responsible for inertia in aggregate demand in MM.- (e) Solutions of the extended DBM.- 26.5 Detailed analysis of MM responses to a monetary shock.- (a) Effects on the interest rate via the demand for money curve.- (b) Strategy for explaining the path of the exchange rate after the initial devaluation.- (c) Simplified price system for MM.- (d) Calibrating the simplified price system.- (e) Explaining short-term interest rate movements.- (f) Responses of dwelling investment and consumption.- (g) Responses of business fixed investment.- 26.6 D4M - a descriptive miniature Murphy Model for the analysis of a monetary shock.- (a) GNE, the price of the domestic good, and the interest and exchange rates.- (b) Calibrating D4M to MM.- (c) Completing the miniature model: the trade account and GDP.- (d) Extending the coverage of D4M: investment, imports and employment.- 26.7 Summary.- 27 A Fiscal Shock.- 27.1 The nature of the shock and general introduction.- 27.2 Strategy for constructing a shock-specific miniature.- 27.3 Identifying important initial consequences of the fiscal shock.- (a) The initial jump in GNE.- The jump in consumption.- Contribution to GNE of increased general government employment via labour market and wealth effects in MM's consumption function.- Direct contributions to GNE of government spending.- (b) Price behaviour in quarters 1 and 2 followinq the shock.- Regaining our bearings, I.- 27.4 Terminal conditions, I : Insights from HSM.- 27.5 Terminal conditions, S3MM-A stylized steady-state Murphy Model.- (a) Introduction to S3MM.- (b) Sustainability offoreign debt.- (c) Effects offiscal expansion in S3MM.- Macro comparisons with MM.- Increased public consumption.- Increased public employment.- Regaining our bearings, H.- 27.6 F3M-A fiscal miniature Murphy Model.- (a) Steady-state values for nominal GNE, the price of the domestic good, and the nominal exchange rate.- (b) Calibration ofF3M.- 27.7 MM's dynamic response.- (a) Wealth, foreign debt, labour income and consumption.- Portfolio changes.- (b) The real exchange rate and the trade account.- (c) Investment and GDP.- (d) Employment.- 27.8 Summary.- Appendices to Part.- 3.1 Parameter file for MM used in Part 3.- 3.2 Excel spreadsheet used to solve the Extended Dornbusch Model.- 3.3 Values of variables for calculating ratios in MM's steady state.- References.- Author and Personal Names Index.- Tables.- Figures.- Exercises.