Economic models and their use in economic policy
Download
1 / 8

ECONOMIC MODELS AND THEIR USE IN ECONOMIC POLICY - PowerPoint PPT Presentation


  • 108 Views
  • Uploaded on

ECONOMIC MODELS AND THEIR USE IN ECONOMIC POLICY. INTERVENTIONS - DISEQUILIBRIA. Markets indicator consequences 1.Product market prices inflation. deflation 2.Labor market wages unemployment 3.Capital market interests capacity utilization

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'ECONOMIC MODELS AND THEIR USE IN ECONOMIC POLICY' - tirzah


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript

Interventions disequilibria
INTERVENTIONS - DISEQUILIBRIA

Markets

indicator consequences

1.Product market prices inflation. deflation

2.Labor market wages unemployment

3.Capital market interests capacity utilization

4.Foreign exchange exch. rate deficit. surplus.

Problems

Conflicting goals: Phillips curve

Indirect effects:

Lags: establishing the problem. decission making. implementation


Economic model
ECONOMIC MODEL

C=f(Y-T) C = a + b*(Y-T) consumptionfunction

I=g(DY, R) I = c*DY + d*R investmentfunction

G=T G = T government

Y=C+I+G Y=C+I+G identity GDP

Components:

variables: endogenous. exogenous

parameters: a>0. 0<b<1. c>0. d<0

equations: behavoiuristic. instituonal. tehnical. identities


Econometric model
ECONOMETRIC MODEL

Structural form:

(1) Ct= a + b*(Yt-Tt)

(2) It = c*(Yt-Yt-1) + d*Rt

(3) Gt = Tt

(4) Yt = Ct + It + Gt

Yt-1predeterminedendogenousvariable. dynamic model

Reduced form:

(4) Yt(1-b-c) = a + (1-b)*Tt + d*Rt – c*Y t-1

ifdefiningA=1/(1-b-c) (a multiplier) weget

(4) Yt= a*A + (1-b)*A*Tt+ d*A*Rt - c*A*Y t-1

(1) Ct = a + b*(a*A + (1-b)*A*Tt+ d*A*Rt - c*A*Y t-1 -Tt)

(2) It = c*(a*A + (1-b)*A*Tt+ d*A*Rt - c*A*Y t-1 - Y t-1) + d*Rt

(3) Gt = Tt


Public sector
PUBLIC SECTOR

Allocation– careforpublicgoods

Redistribution – justice, progresivity

Stabilisation – macroeconimcstability

Market failures

monopolies

publicgoods

externalities

nonperfectmarkets

informationalproblems

macroeconomicdisequlibria

Publicprovision. publicfinancingandpublicregulation


Demand and supply side economics
DEMAND AND SUPPLY SIDE ECONOMICS

Y = C + I + G

C = a + b(Y-T)

T =T0 + tY

*********

Y = a + b(Y - T0 - tY) + I + G

Y = a + bY - bT0 – btY + I + G

Y(1-b+bt) = a - bT0 + I + G

Y = 1/(1-b+bt)*a – b/(1-b+bt)*T0 + 1/(1-b+bt)*I + 1/(1-b+bt)*G

– b/(1-b+bt) taxmultiplier – “supplyside” economics

1/(1-b+bt) expendituresmultiplier – “demandside” economics


Financing of budget deficit
FINANCING OF BUDGET DEFICIT

T – G = Bgp + Bgf + dH + dR + PP + dZ

T- G = Bgp+ Bgf + dH

Problems: dH – inflation

Bgp – crowding out (physical. financial)

Bgf - foreign savings. monetization

dH – money printing

dH = ( p + r )/ v = p/v + r/v

dH = p/v (inflationary tax) + r/v (seignorage)

**************

Bgp – borrowing at home. Bgf - borrowing abroad. H – base money.

dR – reduction in foreign exchange reserves. PP – property sales. Z – late payments

p – inflation. r – growth. v – velocity of circulation


Resolving public debt
RESOLVING PUBLIC DEBT

dD = D(i-r) + PR – dH

solvingbyfiscalpolicy (1)

dD = 0  0 = D*(i-r) + PR  - PR = D*(i-r)

solvingbyinflation (2)

dD = 0  0 = D*(i-r) – (p+r)/v

 (p+r) = v*(D*(i-r))

 p = v* D* (i-r) – r

D – publicdebt/GDP. PR – primary deficit/BDP . p – inflation.

i – interestrate. r – growth. v – velocityofcirculation

Example:

v=10, D=0.8*GDP, i=0.05, r=0.02

-PR =0.8*(0.05-0.02) = 0.024  2.4% primarysurplus

p =10*0.8*(0.05-0.02)-0.02=0.22  22% inflation