1 / 8

ECONOMIC MODELS AND THEIR USE IN ECONOMIC POLICY

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

tirzah
Download Presentation

ECONOMIC MODELS AND THEIR USE IN ECONOMIC POLICY

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. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. ECONOMIC MODELS AND THEIR USE IN ECONOMIC POLICY

  2. 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

  3. 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

  4. 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

  5. PUBLIC SECTOR Allocation– careforpublicgoods Redistribution – justice, progresivity Stabilisation – macroeconimcstability Market failures monopolies publicgoods externalities nonperfectmarkets informationalproblems macroeconomicdisequlibria Publicprovision. publicfinancingandpublicregulation

  6. 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

  7. 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

  8. 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

More Related