MacSim A software to evaluate macroeconomic policies J EAN -L OUIS - - PowerPoint PPT Presentation

MacSim A software to evaluate macroeconomic policies

JEAN-LOUIS BRILLET GILBERT CETTE IAN GAMBINI THOMAS LAGOARDE-SEGOT

December 2012 1

General summary

I. The framework of MacSim II. The real economy III. The financial aspects: framework and options IV. The modifiable coefficients and the possible shocks V. The mechanisms in action VI. Some examples of simulations VII. Conclusion: The strong points of MacSim

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THE SOFTWARE MACSIM General summary

December 2012

I. The framework of MacSim

I.1 General characteristics I.2 The possible macroeconomic policies I.3 The objective relation

II. The real economy

• III. The financial aspects: framework and options
• IV. The modifiable coefficients and the possible shocks

V. The mechanisms in action

• VI. Some examples of simulations
• VII. Conclusion: The strong points of MacSim

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THE SOFTWARE MACSIM General summary Part I

December 2012

I.1 General characteristics MacSim is a software to evaluate policies and not to realise forecasts User-friendly Neo-keynesian framework With real and financial restoring forces Adapted to the evaluation of macroeconomic policies, for example fiscal ones In the current context, particularly adapted to the evaluation of: – recovery plans – consolidation plans – structural policies MacSim1: Published in 2001 (Editions MontChrestien) MacSim2: Published in 2012 (Editions Economica) Improvment of operational dimension

THE SOFTWAREMACSIM

• I. The framework of MacSim

December 2012

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I.1 General characteristics Multinational modelisation 10 individualised and active economies: Germany, Belgium, France, Italy, Luxembourg, Netherlands, other countries of euro zone, United Kingdom, USA, Japan The Rest of the World (ROW) is passive Country models are identical. Composed of 50 to 60 relations 10 to 15 of which are econometric with some long term constraints Econometric relations are usually Error Correction Models (ECM) There exists an implicit unemployment equilibrium rate for each country The fiscal policies do not influence the very long term equilibrium The structural policies may influence the very long term equilibrium For example: productivity shocks, active population shocks…

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THE SOFTWARE MACSIM

• I. The framework of MacSim

December 2012

I.1 General characteristics MacSim is estimated on quarterly data The simulations are also realised on quarterly data The simulation results are given: Through Tables on annual data Through Graphs on quarterly data High ergonomy to access to simulation results, by chapter: main results, prices, external trade, labour market, public finance, firms, households…

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THE SOFTWARE MACSIM

• I. The framework of MacSim

December 2012

I.2 The possible macroeconomic policies

For each economy, 11 macroeconomic policy types:

1. Public Administration employment 2. Average wage gap between public sector and private sector employment 3. Real global demand of Public Administrations 4. Social benefits received by households 5. Average income tax rate of the households 6. Employee social contribution rate 7. Employer social contribution rate 8. Average tax rate on company profits 9. Rate of subsidies received by companies

• 10. Average VAT rate
• 11. Average tax rate on imports from each country and from the

ROW

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THE SOFTWARE MACSIM

• I. The framework of MacSim

December 2012

I.3 The objective relation To evaluate in a synthetic way the performances of the simulated policies Linear relation: R = a1.EA - a2.EB - a3.EC + a4.ED + a5.EE Prefixe E : Gap with the reference count (in % for A and by point for other variables) A : GDP Volume B : Unemployment rate C : Inflation rate D : Government balance (in pt of GDP) E : Trade balance (in pt of GDP) By default: a1 = 0.15 ; a2 = 0.10 ; a3 = a4 = a5 = 0.25 These values may be changed

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THE SOFTWARE MACSIM

• I. The framework of MacSim

December 2012

I. The framework of MacSim II. The real economy

II.1 The country models II.2 The production function II.3 Prices and wages II.4 The external trade II.5 Others

• III. The financial aspects: framework and options
• IV. The modifiable coefficients and the possible shocks

V. The mechanisms in action

• VI. Some examples of simulation
• VII. Conclusion: The strong points of MacSim

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THE SOFTWARE MACSIM General summary Part II

December 2012

Value added Employ. desired Capacity desired Capital desired Invest. realised Capital realised Capacity realised Total Employ. Employ. realised Prices Active Popul. Capacity utilis. rate Unemply. Working Age population Wages VAT, Other indirect taxes, Employer social contributions Public demand Income tax Profit tax Employee social contributions Social benefits Household, Firm and Public administration Incomes and financial situation Internal demand: Consumption, Investments, Inventory changes Public demand Exports Imports Mondial demand Foreign prices Competit. Public employment Total factor productivity Factor Relative cost

II.2 The production function Cobb-Douglas production function Unitary elasticity of substitution in the long term Investment : TFP Accelerator (Production and tensions) Relative cost of production factors Profits Employment: TFP Accelerator (Production) Relative cost of production factors

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THE SOFTWARE MACSIM

• II. The real economy

december 2012

II.3 Prices and wages Modelisation: WS – PS logic Value added price: Profit share target Tensions Average wage: Implicit profit share target Inflation Unemployment rate

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THE SOFTWARE MACSIM

• II. The real economy

December 2012

II.4 The external trade Bilateral import volumes Internal demand multilateral price competitiveness Relative tensions Bilateral export volumes From bilateral import volumes Bilateral export prices Geometric average of production prices (modulo exchange rate) and

• f external prices

Import taxes Bilateral import prices From bilateral export prices Trade matrix between the 10 economies and the ROW

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THE SOFTWARE MACSIM

• II. The real economy

December 2012

II.5 Others Unemployment Employment Active population Participation rate changes Household demand Savings rate target influenced by: – Inflation – Unemployment rate

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THE SOFTWARE MACSIM

• II. The real economy

December 2012

I. The framework of MacSim II. The real economy

• III. The financial aspects: framework and options

III.1 The general framework III.2 The interest rates III.3 The exchange rates III.4 The possible Monetary Union

• IV. The modifiable coefficients and the possible shocks

V. The mechanisms in action

• VI. Some examples of simulations
• VII. Conclusion: The strong points of MacSim

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THE SOFTWARE MACSIM General summary Part III

December 2012

III.1 The general framework

THE SOFTWARE MACSIM

• III. The financial aspects: framework and
• ptions

December 2012

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III.1 The general framework

• ptions

december 2012

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III.2 The interest rates Short term interest rates: 3 options

• 1. Stable nominal short term interest rates
• 2. Stable real short term interest rates
• 3. Taylor rule

Risk premium linked to the public finance deficit Long term interest rates Smoothed changes of short term rates III.3 The exchange rates Three options

• A. Stable nominal exchange rates
• B. Stable real exchange rates (PPP)
• C. Uncovered interest rate parity

THE SOFTWARE MACSIM

• III. The financial aspects: framework and
• ptions

December 2012

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III.4 The possible Monetary Union Possible to constituate a Monetary Union (MU) The composition of the MU is chosen at the beginning of the use Same short term interest rates in the MU The long term interest rates may differ (risk premium) Same exchange rates in the MU The MU is symetric: The MU monetary policy depends on the average situation

THE SOFTWARE MACSIM

• III. The financial aspects: framework and
• ptions

December 2012

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I. The framework of MacSim II. The real economy

• III. The financial aspects: framework and options
• IV. The modifiable coefficients and the possible shocks

IV.1 The modifiable coefficients IV.2 The possible shocks

V. The mechanisms in action

• VI. Some examples of simulations
• VII. Conclusion: The strong points of MacSim

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THE SOFTWARE MACSIM General summary Part IV

December 2012

IV.1 The modifiable coefficients At the initialisation step The 3 import price elasticities and then the export price elasticities Same for all economies The risk premium coefficient Country specific The Taylor rule coefficients Same for all economies The objective relation coefficients Same for all economies

THE SOFTWARE MACSIM IV. The modifiable coefficients and the possible shocks

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IV.1 The possible shocks Global shocks: . Exchange rate shock vis-à-vis the ROW . Demand shock from the ROW Country specific shocks: . Total population shock . Active population shock . TFP shock . Average wage shock

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THE SOFTWARE MACSIM IV The modifiable coefficients and the

possible shocks

December 2012

I. The framework of MacSim II. The real economy

• III. The financial aspects: framework and options
• IV. The modifiable coefficients and the possible shocks

V. The mechanisms in action

V.1 Without restoring forces V.2 With restoring forces

• VI. Some examples of simulations
• VII. Conclusion: The strong points of MacSim

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THE SOFTWARE MACSIM General summary Part V

December 2012

V.1. Without restoring forces

THE SOFTWARE MACSIM

• V. Variantes : The mechanisms in action

December 2012

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demand

Production

+ +

• +

Employment Unem- ployment Wages

+ +

Household income

+ +

Internal demand

+

External demand

• +

current account

V.2. With restoring forces

THE SOFTWARE MACSIM

• V. Variantes : The mechanisms in action

December 2012

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• Capacity

utilisation rate

+ + + + demand

Production

+ +

• +

Employment Unem- ployment Wages

+ + +

• Household

income

+ + +

Internal demand

+

Profits

• Prod.

costs +

• +

External demand

• Prices

+

• +
• +

current account

_

V.2. With restoring forces Restoring forces are activated by the tensions on: Product market . Tension indicator: Capacity utilisation rate . Impact: Prices, external demand, internal demand . Transitory impact Labour market . Tension indicator: Gap between unemployment rate and NAIRU . Impact: Wages, prices, external demand, internal demand . Medium to long term possible impacts Public finance balance . Tension indicator: Public finance balance, in GDP points . Impact: Short and long term interest rate, household and firm demand Only supply policies have an impact on the NAIRU Shocks on active population or on TFP can have a permanent equilibrium impact

THE SOFTWARE MACSIM

• V. Variantes : The mechanisms in action

December 2012

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I. The framework of MacSim II. The real economy

• III. The financial aspects: framework and options
• IV. The modifiable coefficients and the possible shocks

V. The mechanisms in action

• VI. Some examples of simulations

VI.1 Common hypothesis VI.2 Two simple shocks VI.3 A sustainable growth strategy

• VII. Conclusion The strong points of MacSim

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THE SOFTWARE MACSIM General summary Part VI

December 2012

VI.1 Common hypothesis Policies implemented in France only One MU including: Germany, Belgium, France, Italy, Luxembourg, Netherlands, Others euro Zone Short term interest rates: Taylor rule (Option 3) Risk premium coefficient= 0.1 Exchange rate: Purchasing Power Parity (Option B) External trade price elasticities: Supposed equal to one Result presentation: Differences with a reference situation without the policy GDP and consumer price: difference in % Public finance balance and current account: difference in GDP points

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THE SOFTWARE MACSIM

• VI. Some examples of simulations

December 2012

VI.2 Two simple shocks Demand shock: Increase of the public demand by one GDP point Supply shock: Decrease of employer social contribution by one point

Simulation results

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THE SOFTWARE MACSIM

• VI. Some examples of simulations

December 2012

Shock Time France Germany GDP Cons. Price Cur. Acc. Public acc. GDP Cons. Price Cur. Acc. Public acc. Public demand Year 1 0.56

• 0.03
• 0.44
• 0.48

0.10 0.01 0.06 0.04 Year 8 0.41 0.40

• 0.46
• 0.31

0.09 0.21 0.04 0.06 Social tax rate Year 1 0.22

• 0.56
• 0.01
• 0.19
• 0.01
• 0.01

0.00

• 0.01

Year 8 0.90

• 1.13

0.25

• 0.20
• 0.02
• 0.16

0.00

• 0.10

VI.3 A sustainable growth strategy Public finance consolidation: Decrease of public spending by 2 GDP points, two points the first quarter of the first year Increase of the participation rate: Increase of the average rate by two points, 1 point the first quarter of the first year, one point the first quarter of the second year Structural reforms: TFP acceleration by ½ point per year (0.125 per quarter)

Simulation results

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THE SOFTWARE MACSIM

• VI. Some examples of simulations

December 2012

Shock Time France Germany GDP Cons. Price Cur. Acc. Public acc. GDP Cons. Price Cur. Acc. Public acc. Consolidation Year 1

• 1.09

0.23 0.89 0.97

• 0.19
• 0.02
• 0.10
• 0.07

Year 8

• 0.93
• 0.88

1.03 0.65

• 0.19
• 0.46
• 0.10
• 0.16

Participation Year 1 Year 8 0.05 0.70

• 1.05
• 0.91

0.30 0.08

• 0.15

0.24 0.02 0.00

• 0.04
• 0.25
• 0.08

0.07 0.00

• 0.02

Structural reforms Year 1 Year 8 0.10 2.24

• 0.16
• 3.03

0.20 1.04 0.00 0.00

• 0.01

0.02

• 0.01
• 0.67
• 0.02
• 0.15

0.00

• 0.11

Total Year 1 Year 8

• 0.94

2.01

• 1.12
• 4.82

1.39 2.15 0.82 0.89

• 0.18
• 0.17
• 0.07
• 1.38
• 0.20
• 0.18
• 0.07
• 0.29

I. The framework of MacSim II. The real economy

• III. The financial aspects: framework and options
• IV. The modifiable coefficients and the possible shocks

V. The mechanisms in action

• VI. Some examples of simulations
• VII. Conclusion: The strong points of MacSim

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THE SOFTWARE MACSIM General summary Part VI

December 2012

Multinational modelisation, 10 individualised and active economies Trade interdependance taken into account Financial mechanisms are included Numerous financial options Some coefficients modifiable in an easy way 11 possible macroeconomic policy types Some possible shocks (global or country specific) User-friendly Robust mechanisms and properties But… Cannot take the place of economic analysis

THE SOFTWARE MACSIM Conclusion: The strong points of MacSim

December 2012

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