Bert G. Hickman

Elasticities of substitution and export demands in a world trade model

Abstract Alternative complete models of world trade, based on the trade shares matrix approach, are specified and estimated for twenty-seven countries and regions. This model attempts to explain the composition of imports on the bases of relative prices and time trend, given the total quantity of imports of each country. Elasticities of substitution amongst imports of different countries of origin in each import market are obtained and used in the derivation of aggregate export demand functions for the individual countries. There is also a comparison of the predictive performance of the alternative models.

What Became of the Building Cycle

Publisher Summary This chapter describes building cycles, Kuznets cycles, and business cycles and discusses the housing model. The concept of a long building cycle figures prominently in the pre-World War II literature on economic fluctuations. The contraction phases of these long cycles consisted of prolonged and deep declines in the absolute level of new building construction. The long cycles were dominated by residential construction, but other types of building participated as well. Wardwell and Kuznets established the existence of secondary secular movements in detrended production and price series that had been smoothed to attenuate the influence of business cycles, and Burns showed that the existence of such trend-cycles was so widespread among individual industries as to strongly suggest the existence of long swings in the growth rate of aggregate economic activity. The long swings in building activity and economic growth are closely related historically. The average duration of each is about 17–18 years, they are in one-to-one correspondence, and they bear a similar relationship to ordinary business cycles. The housing model consists of four behavioral equations and five identities. The first two behavioral equations relate to the demand and supply for the total stock of dwelling units in the economy and together determine the level of rent and the number of households or occupied dwelling units. The second pair of behavioral functions is concerned with the construction of new dwelling units. One of them is a builders production decision equation to determine the number of new private dwelling units started, whereas the other predicts the value of construction per new start. The various identities serve to relate the number and value of new housing starts to the stock of dwelling units and its value in constant dollars.

Macroeconomic Impacts of Energy Shocks and Policy Responses: A Structural Comparison of Fourteen Models

Publisher Summary This chapter presents a comparative analysis of the macroeconomic impacts of an adverse oil price shock, as derived in simulation studies involving fourteen macroeconometric models. The mitigating effects of monetary and fiscal policies to accommodate the energy shock are also analyzed for the various models. Many of the models explain dozens or even hundreds of variables in addition to real gross national product (GNP) and the price level, and they usually exhibit complicated dynamic patterns which are overly simplified in the simple dichotomy of short versus long-run responses. Nevertheless, the simple framework of aggregate supply and demand provides a markedly useful perspective for understanding the aggregate impacts of an oil shock in fairly basic terms. The IS-LM framework taken by itself serves to determine the interest rate and real income levels consistent with equilibrium in the markets for goods and money under conditions of perfectly elastic output supply at a given price level.

The Hickman-Coen Annual Growth Model: Structural Characteristics and Policy Responses

THIS PAPER DISCUSSES THE STRUCTURE and properties of the Hickmnan-Coell Annual Model of the U.S. economy. The model is designed to make conditional projections of the annual timne paths of the major aggregative variables-actual and potential GNP; labor force, employment and unemployment; wages and prices- 10 or more years into the future, under alternative assumptions about government policies and demographic and technological trends. It therefore incorporates those variables and processes which are most important for determining the movement of the economy over the long run, rather than emphasizing the minor (inventory-cycle) characteristics which primarily affect short-run stability. The model combines elements of the Keynesian and neo-classical approaches to the determination of actual and potential output. The neo-classical strands are evident in the derivation of the factor demand equations from marginal productivity conditions incorporating relative factor prices and in the use of an explicit production function for potential output. The Keynesian constituents include an income-expenditure framework for the determination of effective demand in real terms and a specification that links the real and monetary sectors through interest rates. Money wages are proximately determined by changes in labor demand and wage expectations on a wage-adjustinent hypothesis, whereas prices depend directly oln long-run average cost and a markup whiclh varies with

Real wages, aggregate demand, and unemployment

A new methodology for differentiating the effects of aggregate demand and real wage rigidity on unemployment is presented. It departs from the standard fixprice model by specifying that (1) product markets are imperfectly competitive and (2) demand functions for labor and capital are conditional on output as well as on the real wage. Keynesian and classical unemployment may coexist instead of occupying separate regimes as in the rationing model with competitive firms. The method is used to estimate the volumes of natural, excess, hidden, demand gap, and wage gap unemployment in the United States during 1959–1982.

Long-Term Simulations with the Project Link System, 1978–1985

Publisher Summary This chapter presents new long-term simulations of the Project LINK system through 1985. Project LINK is a cooperative, international research activity linking structural econometric models of 13 developed market economies, 7 centrally planned socialist countries, and 4 developing regions into a world model closed by rudimentary models for the rest of the world. The chapter describes the Project LINK system, its appropriateness for medium- or long-term applications, and the methodology of the simulations. LINK Central, located at the Department of Economics, University of Pennsylvania, serves as the central computer repository for the associated models and data bank and bears the responsibility for forecasts and simulations of the system. The chapter presents a baseline solution from realistic initial conditions in 1978/1979 and trend extrapolations of exogenous variables through 1985. It further presents the scenarios for investment promotion through coordinated fiscal policies in13 organisation for economic co-operation and development (OECD) countries and the response to changes in world oil prices.

A Cross Section of Global International Economic Models

The purpose of this volume is to survey the state of the art of global international economic modeling. This is a new and flourishing field as witnessed by the fact that the pioneering Project LINK model is little more than a decade old and most other models reviewed in this volume date from the late 1970s. The models all feature national or regional disaggregation of the world economy and linkages and interactions among the regions, but they emphasize different aspects of the world economic system. Macroeconometric, input–output, general equilibrium, and trade and exchange-rate models are included, as well as several hybrid systems. A few of the models are constructed for shortrun forecasting, but the primary focus is on long-run models and applications.

Analyzing the Simulation Properties of a Macroeconometric Model by Estimating Its Implicit AD-AS Structure

Large macroeconometric models are frequently used to simulate the responses of endogenous variables to exogenous shocks. Because the models are complex, it is often difficult to predict the outcomes of such experiments, to explain the results in an intuitive way, or to determine why alternative models produce different results.

Link Proceedings 1991, 1992:Selected Papers from Meetings in Moscow, 1991, and Ankara, 1992

This book covers two years of research activities associated with Project LINK, which is based on a model of the world economy, covering 79 countries or regional groupings of countries. Papers dealing with interesting thematic issues were carefully selected and expanded into full articles. The subjects studied by various LINK participants for reporting at annual meetings include exchange rate systems, international investment, environmental protection, international economic institutions, LINK system improvements, and international economic policy. As always, there are contributions dealing with methodological advances for world modeling.

Classical and Keynesian unemployment in Austria

The labor market in a macroeconometric model of Austria is used to determine the natural unemployment rate, full-employment (F.E.) output, and the F.E. real wage for 1966–92. Gaps between actual and F.E. variables are examined analytically and historically. Observed unemployment is decomposed into natural, hidden, classical, and Keynesian components. Classical unemployment is associated with the real wage gap, while Keynesian unemployment depends on the output gap. A rise in the natural rate is found to account for almost all of the increase in unemployment between 1966–74 and 1975–81, but an increase in Keynesian unemployment is the major factor in the rise of unemployment between 1975–81 and 1982–92. A fiscal shock to the complete model is found to increase real GDP for a year or two, reducing Keynesian unemployment without an appreciable rise in classical unemployment; the wage gap is eventually increased, however, producing a modest rise in classical unemployment.