On evaluating and extending the target zone proposal

Die Bestimmung der Wechselkurse in den multinationalen Modellen: eine Bestandsaufnahme, von Agnes Benassy, Henri Sterdyniak. In diesem Artikel werden die verschiedenen theoretischen Modelle fur die Bestimmung der Wechselkurse analysiert und diejenigen aufgefuhrt, die bei den multinationalen Modellen zur Anwendung kommen. Untersucht wird die jeweilige Auswirkung der Optionen hinsichtlich der Vorwegnahmen, der Folgen fur die Bilanzvermogenswerte sowie der Wahrungspolitik. Innerhalb dieses theoretischen Rahmens kann dann untersucht werden, wie die Wechselkurse in den multinationalen empirischen Modellen behandelt werden.

La détermination des taux de change dans les modèles multinationaux : l'état de l'art

That the rest of the world will absorb the reduction of the US trade deficit is a matter of accounting: because this deficit is the trade surplus of the rest of the world, eliminating one means eliminating the other. What is not so evident is which countries will absorb this reduction, an issue of growing interest in view of the significant re-allocation of productive factors that are likely to emerge. That the US trade deficit will improve in response to a real depreciation of the dollar is not in doubt. What is not so clear is how long it will take, an important question given the constraints that external imbalances impose on the design of macroeconomic policy.

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Income and Price Elasticities of Foreign Trade Flows: Econometric Estimation and Analysis of the US Trade Deficit

Better policy coordination between Europe, Japan, and the United States is urgently needed in order to restore economic growth and to diminish mutual trade imbalances. Using the EC Compact model it is shown how coordinated fiscal policies can contribute to reaching these goals in the 1990s. For Europe, the most plausible fiscal policy option seems to be a combination of lower direct taxes, public spending cuts, and wage moderation; for Japan a more expansionary fiscal policy is feasible. For the United States, however, public spending cuts or tax increases are necessary conditions for better economic performance. In addition, for all three blocks a swap between tax reduction and wage moderation is recommended.

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The need for economic policy coordination between Europe, Japan, and the United States: Policy recommendations for the 1990s

Publisher Summary This chapter discusses the structure and properties of the multicountry econometric model. The model differs from other models in a number of ways. It accounts for exchange-rate, interest-rate, and price linkages between countries as well as the usual trade linkages. Previous multicountry econometric models have been trade-linkage models. One of the important features of the theoretical model is that the decisions of the individual agents are assumed to be derived from the solutions of multiperiod maximization problems: households maximize utility and firms maximize profits. The variables that explain the decision variables are variables that affect the solutions. There are a number of options for determining interest rates in the theoretical model. The option used for the econometric model is the postulation of reaction functions for the monetary authorities of the various countries. These reaction functions are equations in which the monetary authorities are estimated to “lean against the wind”. As inflation, real output, or the growth of the money supply increases, the monetary authorities are estimated to allow short-term interest rates to rise.

An Outline of a Multicountry Econometric Model

Publisher Summary This chapter discusses the theoretical structure and simulation properties of the multicountry model (MCM) that has been developed in the International Finance Division at the Federal Reserve Board. MCM is a system of linked national macroeconomic models at the centre of which is a medium-sized model of the US economy. Linked to it, and to each other, are models for Canada, the Federal Republic of Germany (FRG), Japan, the United Kingdom, and an abbreviated model representing the Rest of the World (ROW). The country models explain the domestic variables and international transactions of each country. The instruments of monetary policy—reserve requirements, the discount rate, and net central-bank holdings of domestic and foreign assets—and fiscal policy—government expenditures and tax rates—are integrated into each country model. All five models have been simulated in isolation, and have been linked with each other and with a small set of equations explaining the merchandise trade of an aggregated ROW sector and short- and long-term Eurodollar interest rates.

Richard Berner

Papers

The Structure and Properties of the Multicountry Model