' MODEL PC for Eviews version 4.1 ' from Wynne Godley & Marc Lavoie ' MONETARY ECONOMICS ' Chapter 4 ' This program creates model PCNEO, described in chapter 4, Appendix 4.4, and simulates the model ' to produce results in figures A4.1 ' **************************************************************************** ' Copyright (c) 2006 Gennaro Zezza ' Permission is hereby granted, free of charge, to any person obtaining a ' copy of this software and associated documentation files (the "Software"), ' to deal in the Software without restriction, including without limitation ' the rights to use, copy, modify, merge, publish, distribute, sublicense, ' and/or sell copies of the Software, and to permit persons to whom the ' Software is furnished to do so, subject to the following conditions: ' ' The above copyright notice and this permission notice shall be included in ' all copies or substantial portions of the Software. ' ' THE SOFTWARE IS PROVIDED "AS IS", WITHOUT WARRANTY OF ANY KIND, EXPRESS OR ' IMPLIED, INCLUDING BUT NOT LIMITED TO THE WARRANTIES OF MERCHANTABILITY, ' FITNESS FOR A PARTICULAR PURPOSE AND NONINFRINGEMENT. IN NO EVENT SHALL THE ' AUTHORS OR COPYRIGHT HOLDERS BE LIABLE FOR ANY CLAIM, DAMAGES OR OTHER ' LIABILITY, WHETHER IN AN ACTION OF CONTRACT, TORT OR OTHERWISE, ARISING ' FROM, OUT OF OR IN CONNECTION WITH THE SOFTWARE OR THE USE OR OTHER DEALINGS ' IN THE SOFTWARE. ' **************************************************************************** ' Create a workfile, naming it PCNEO, to hold annual data from 1945 to 2010 create pcneo a 1945 2010 ' Creates and documents series series b_cb b_cb.displayname Government bills held by Central Bank series b_h b_h.displayname Government bills held by households series b_s b_s.displayname Government bills supplied by government series cons cons.displayname Consumption goods series g g.displayname Government goods series h_h h_h.displayname Cash money held by households series h_s h_s.displayname Cash money supplied by central bank series r r.displayname Interest rate on government bills series r_bar r_bar.displayname Interest rate as policy instrument series t t.displayname Taxes series v v.displayname Households wealth series y y.displayname Income = GDP series yd yd.displayname Disposable income of households ' Generate parameters series alpha1 alpha1.displayname Propensity to consume out of income series alpha2 alpha2.displayname Propensity to consume out of wealth series lambda0 lambda0.displayname Parameter in asset demand function series lambda1 lambda1.displayname Parameter in asset demand function series lambda2 lambda2.displayname Parameter in asset demand function series theta theta.displayname Tax rate ' Set sample size to all workfile range smpl @all ' Assign values for ' PARAMETERS alpha1=0.6 alpha2=0.4 lambda0 = 0.635 lambda1 = 5 lambda2 = 0.01 theta=0.2 ' EXOGENOUS g=20 r_bar = 0.025 r = r_bar ' Starting values for stocks b_cb = 21.576 b_h = 64.865 b_s = b_h+b_cb h_h = 21.62 h_s = h_h v = b_h + h_h ' Shock to amount of bills held by the central bank smpl 1960 @last b_cb = b_cb - 1.5 smpl @all ' Create a model object, and name it pcneo_mod model pcneo_mod ' Add equations to model PCNEO ' Determination of output - eq. 4.1 pcneo_mod.append y = cons + g ' Disposable income - eq. 4.2 pcneo_mod.append yd = y - t + r(-1)*b_h(-1) ' Tax payments - eq. 4.3 pcneo_mod.append t = theta*(y + r(-1)*b_h(-1)) ' Wealth accumulation - eq. 4.4 pcneo_mod.append v = v(-1) + (yd - cons) ' Consumption function - eq. 4.5 pcneo_mod.append cons = alpha1*yd + alpha2*v(-1) ' Cash money - eq. 4.6 pcneo_mod.append h_h = v - b_h ' Equilibrium interest rate, from the demand for government bills - eq. 4.7 pcneo_mod.append r = (b_h/v - (lambda0 - lambda2*(yd/v)))/lambda1 ' Supply of government bills - eq. 4.8 pcneo_mod.append b_s = b_s(-1) + (g + r(-1)*b_s(-1)) - (t + r(-1)*b_cb(-1)) ' Government bills held by households - eq. A4.3.3 pcneo_mod.append b_h = b_s - b_cb ' End of model ' Select the baseline scenario pcneo_mod.scenario baseline ' Drop first observation to get starting values for solving the model smpl 1946 @last ' Solve the model for the current sample pcneo_mod.solve ' Creates charts from simulated variables ' Creates the chart in Figure A4.1 smpl 1957 2001 graph figA4_1.line r_0 figA4_1.setelem(1) lcolor(red) lwidth(2) lpat(1) figA4_1.name(1) Rate of interest on bills figA4_1.addtext(t) Figure A4.1 Evolution of r following a step decrease in Bcb show figA4_1