Patrick Artus

Investment, Output and Labor Constraints, and Financial Constraints: The Estimation of A Model With Several Regimes

The subject of this article is the applying of techniques of estimating models with rationing to the general expression of investment demand.

Exchange rate and wage-price dynamics: A theoretical analysis and an econometric investigation

Abstract This paper is an attempt to analyze inflation dynamics in a small open economy as the result of the interaction between wage and price determination behaviors and the interest rate-exchange rate feedback in the context of Dornbuschs model. An extended version of this model is specified and analyzed formally. Then the model is estimated for five OECD countries using a full information maximum likelihood technique. Finally, simulations of the effect of monetary shocks are presented for four countries.

Economic policy and investment in the 1970s* *Originally published as “Politique conjoncturelle et investissement dans les années 70,” Observations et Diagnostics Economiques 1: 61–90, June 1982.

Publisher Summary This chapter discusses the impact of the main economic-policy measures affecting investment from 1973 to 1980. The first conclusion that can be drawn from a study of the years 1973-1980 is that tax and monetary policies affecting investment did not help to stabilize the cyclical movements during the period. This was mainly a result of their slow impact. Although usually enacted at the time when the cycle seemed to call for them, these policies often produced their effects at the wrong moment. For example, the credit restrictions of 1973–1974, imposed as a part of an anti-inflation plan, slowed investment from 1973 to 1975 and contributed heavily to the 1975 recession by cutting growth by 0.9 points just at the time when the government was implementing a recovery plan. The tax deduction enacted as a part of that recovery package yielded its maximum effect in 1976, when the upturn in growth and investment was already a certainty. Its abolition in January 1976 slowed investment growth and output growth at a time when a new cyclical slowdown was in the offing.

An Aggregate Model of the World Economy

Most of the existing models of the world economy consist of national models linked together by commercial and financial flows (see for instance Project LINK, INTERLINK (1979), the COMET model (1980), the ATLAS model (1983) …). Some papers however (Parkin-Zis (1976), Beenstock-Dicks (1983)) consider the world as a whole to be modelled as a single country. A similar approach has been followed in this paper. Its advantages (commercial and financial flows between countries as well as exchange rate fluctuations disappear) and shortcomings (data is difficult to build on an aggregate basis) are rather straightforward.