1998 International Monetary Fund

May 1998

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MULTIMOD documentation and programs needed to run simulations.



O C C A S I O N A L   P A P E R     
164
 
  
MULTIMOD Mark III
The Core Dynamic and Steady-State Models

Douglas Laxton, Peter Isard, Hamid Faruqee, Eswar Prasad, and Bart Turtelboom

Contents

 Preface

Part 1
136k pdf file   
Section I.  Introduction
Overview
What's New?
Box
1. MULTIMOD: Summary of the Mark III Generation
  Section II.  The Philosophy and Basic Structure of MULTIMOD
Philosophical Underpinnings
History and Country Disaggregation
Commodity Disaggregation and Behavioral Units
The Supply Side and the Unemployment-Inflation
Nexus
Consumption, Investment, and International Trade
Fiscal Policy: Government Spending, Taxes, and Debt
Monetary Policy
Oil, Primary Commodities, and Nontradables
Financing Constraints and Absorption for Developing
Countries
Accounting Identities, Arbitrage Conditions, Interest Rates,
and Exchange Rates
Boxes
2. The Spillover Effects of Government Debt
3. Government Expenditure Multipliers Under Alternative Monetary Policy Reaction Functions
Tables
Box 2. Effects of a Five-Year Temporary Tax Cut That Permanently Increases the Debt-to-GDP Ratio of the United States by 10 Percentage Points
Box 3. Effects of a 1 Percent of GDP Permanent Increase in Government Expenditure in Japan Under Alternative Monetary Policy Reaction Functions

Part 2
84k pdf file   
Section III.  The Steady-State Analogue Model and Mark III Solution Methodology
An Example of Parallel Equations in DYNMOD and
SSMOD
The Steady-State Model as an Interpretive Device
On Using SSMOD to Construct the Control Solution
On Using SSMOD to Obtain Terminal Conditions
The Mark III Solution Methodology
Boxes
4. Government Debt, Net Foreign Liabilities, and the Real Exchange Rate
5. Traditional Solution Techniques and the MARK III Methodology
Table
Box 4. Long-Run Effects of Temporary Tax Cuts That Permanently Increase Debt-to-GDP Ratios by 10 Percentage Points
Figure
Box 5. Convergence Properties of Mark III

Part 3
167k pdf file   
Section IV.  The Inflation-Unemployment Nexus
The Short-Run Trade-Off Between Inflation and
Unemployment
Implications of Linear and Convex Phillips Curves
Specification of the Mark III Phillips Curve
Intrinsic and Expectational Dynamics
Proxies for Inflation Expectations
Estimates of the Mark III Phillips Curve
The Dynamic Effects of Output Gaps on Unemployment
The CPI Equations and Import Price Pass-Through
Boxes
6. Model of a Convex Phillips Curve
7. A Simple Prior-Consistent Filter for Measuring the Natural Rate
8. Asymmetries and Country-Specific Differences in the Real and Nominal Effects of Shocks
Tables
1. Phillips Curve Model
2. Unemployment Equations
3. CPI Equations
4. Estimated Effects on the CPI of a 1 Percent Increase in Import Price
Box 8. The Asymmetric Effects of Positive and Negative Money Supply Shocks
Figures
1. A Convex Short-Run Phillips Curve
2. Unemployment and Output Gaps
Box 7. Estimates of the Natural Rate of Unemployment

Part 4
204k pdf file   
Section V.  Consumption and Saving Behavior: A Life-Cycle Perspective
The Basic Model
Consumption
The Behavior of Dynastic Households
The Life-Cycle Behavior of Disconnected Generations
The Small Open Economy Case
The Closed Economy Case
Extensions
Liquidity Constraints
Population and Productivity Growth
Income Profiles: Theory and Calibration
Specification Issues
Data and Estimation
Steady-State Calibration
Estimates of the Mark III Consumption Function
Appendix. Fiscal Policy Effects in a Small Open Economy
Box
9. The Global Crowding-Out Effects of Government Debt
Tables
5. Small Open Economy Model: Behavioral Equations and Laws of Motion
6. Closed Economy Model: Behavioral Equations and Laws of Motion
7. Extended Closed Economy Model with Liquidity Constraints and Population and Productivity Growth
8. Relative Income Profiles: Nonlinear Least Squares Estimates
9. Theoretical and Projected Steady-State Age Distributions
10. Estimated Parameters of the Mark III Consumption-Saving Model
Box 9. Steady-State Effects of Simultaneous 10 Percentage Point Increases in Ratios of Government Debt to GDP of All Industrial Countries
Figures
3. Estimated Income Profiles
4. Higher Public Debt Through a Temporary Tax Cut in Canada
5. Higher Public Debt with Permanently Higher Fiscal Spending in Canada

Part 5
142k pdf file   
Section VI.  Investment
Appendix. Investment, Output, and Interest Rate
Responses to Demand and Supply Shocks
Figures
6. Impulse Responses in Relation to the Investment Block
  Section VII.  International Trade
Imports
Exports
Adding Up of World Trade and Current Account Balances
Tables
11. Volume Equations for Imports
12. Bilateral Total Exports, 1996
13. Volume Equations for Exports
14. Export Price Equations
Figures
7. Import-Activity Ratios and Relative Import Prices
8. Export-Activity Ratios and Real Competitiveness Indices

Part 6 
77k pdf file   
Section VIII.  Extensions of the Core Model
Extensions of Country Coverage
Other Modifications
Fiscal Consolidation
Endogenous Productivity Growth
Military Expenditures
Boxes
10. Steps Necessary to Integrate Additional Industrial Countries
  References