André Lemelin

What About the Bell-shaped Relationship Between Primacy and Development?

This paper proposes, estimates, and tests a “no-frills” static two-equation recursive model, where the size of the largest city depends on the level of development in a two-step relationship, with the total urban population intervening as an intermediate variable. The model has the following implications for primacy: (1) contrary to Richardson and Schwartzs (1988) assertion, primacy is indeed related to development, albeit indirectly, but (2) the relationship does not display the bell shape predicted by the El-Shakhs-Mera hypothesis. Instead, primacy as a function of development decreases monotonically at a decreasing rate. Research assistance was provided by Atib Salhi.

A GRAS VARIANT SOLVING FOR MINIMUM INFORMATION LOSS

The fundamental idea in Junius and Oosterhaven (2003) is to break down the information contained in the a priori data into two parts: algebraic signs, and absolute values. This approach is well grounded in information theory, and provides a basis on which to solve the problem of adjusting matrices with negative entries. However, Junius and Oosterhaven (2003) have formulated a target function that is not equivalent to the Kullback and Leibler (1951) cross-entropy measure, and so is not a representation of the minimum information loss principle. Neither is the alternative target function proposed by Lenzen et al. (2007). This paper develops the exact Kullback and Leibler cross-entropy measure. In addition, following the constrained optimization approach, this paper applies the same principle to solve adjustment problems where row-sums, column-sums or both are constrained to zero.

GDP Estimates for Regions Within the Province of Quebec: The Changing Geography of Economic Activity

The purpose of this chapter is twofold. First, we report on a method developed at the Institut de la Statistique du Quebec (ISQ) to estimate the GDP of regions within the Province of Quebec. And, second, we analyse the estimates to examine the recent evolution of the geographical pattern of economic activity in Quebec.

Current Account Balances, Exchange Rates, and Fundamental Properties of Walrasian CGE World Models: A Pedagogical Exposition

This paper addresses theoretical aspects of global multinational trade models of the computable general equilibrium (CGE) type. We define and discuss the concepts of model homogeneity, model closure rules, and consistency in calibration. We examine and illustrate these issues using a highly simplified skeleton model derived from the PEP-w-1 CGE world model, to represent the essential structure of world trade models. Model closure issues, including how to correctly fix current account balances, are scrutinized. We also consider the role of nominal exchange rates in Walrasian “real” CGE models (without money), which can be, and often are written without exchange rates. But when exchange rates are present, we show that a model can be solved equivalently by exogenously fixing either exchange rates (FE) or regional price indexes (FP), and we weigh the advantages of either closure for economic interpretation of simulation results. The model is implemented in GAMS and is made available to readers as a supplementary download.

Bond Indebtedness in a Recursive Dynamic CGE Model

In this paper, we present a minimalist version of a model of bond financing and debt, imbedded in a stepwise dynamic CGE model. The proposed specification takes into account the main characteristics of bond financing. Bonds compete on the securities market with shares, so that the yield demanded by the buyers of new bond issues increases as the cumulative bond debt grows relative to the stock of outstanding shares. Restrictions are imposed on the maturity structure of bonds, so that it is possible to attain a reasonable compromise between a realistic representation of the evolution of the debt, and the demands on model memory of past variables values which impinge on the current period. In the proposed model, the borrowing government reimburses bonds that have reached maturity, and pays interest on the outstanding debt. The prices of bonds issued at diffferent periods and with different maturities are consistent with an arbitrage equilibrium. The supply of new bonds and of new shares is determined by the governments and businesss borrowing needs. Security demand reflects the rational choices of portfolio managing households, following a version of the Decaluwe-Souissi model. These notions are illustrated with fictitious data in model EXTER-Debt. The full specification of the model is described, and simulation results are presented which demonstrate model properties.

The Impact of an Identical Demand Shock on Two Cities

It is generally agreed that in a larger, more diversified, economy, leakages are weaker, and multipliers, greater. But how great are the differences? And how significant are the effects of diversity, relative to other factors? These questions are examined using two applied general equilibrium models, one for the Quebec metropolitan area, and the other for the Montreal area. Both models, identical in format, were calibrated from regional social accounting matrices based on the same methods and data sources. By simulating the economic impact of identical exogenous shocks on each of the two economies, it was possible to quantify the differences in the values of the multipliers: they are quite variable, ranging from 8 percent to 33 percent when induced consumption effects are taken into account, and from 2 percent to 27 percent otherwise. In general, differences are smaller for demand shocks that include a substantial fraction of direct labor and other factor income. Controlled simulation experiments show that neither the share of income paid to resident households, nor the households’ propensities to consume seem to play a critical role. So it appears likely that the key factor is indeed size and the diversity of productive capacities, as it is reflected in local suppliers’ market shares.