Robert M. Coen

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

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.