' MODEL growth_modbb for Eviews version 6 ' from Wynne Godley & Marc Lavoie ' MONETARY ECONOMICS ' Chapter 11 ' This program creates model growth_modb, described in chapter 11, and simulates the model ' to produce a baseline. This version of model GROWTH incorporates equations 11.111-11.113 ' which define a reaction function for the interest rate on government bills ' **************************************************************************** ' 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 growth_modb, to hold annual data from 1945 to 2050 wfcreate(wf=growth_modb, page=annual) a 1950 2050 ' Creates and documents series series add_bl add_bl.displayname Spread between long-term interest rate and rate on bills series add_l add_l.displayname Spread between interest rate on loans and rate on deposits series b_bd b_bd.displayname Government bills demanded by commercial banks series b_bs b_bs.displayname Government bills supplied to commercial banks series b_cbd b_cbd.displayname Government bills demanded by Central bank series b_cbs b_cbs.displayname Government bills supplied to Central bank series b_hd b_hd.displayname Demand for government bills from households series b_hs b_hs.displayname Government bills supplied to households series b_s b_s.displayname Supply of government bills series bandB bandB.displayname Lower range of the flat Phillips curve series bandT bandT.displayname Upper range of the flat Phillips curve series bl_d bl_d.displayname Demand for government bonds series bl_s bl_s.displayname Supply of government bonds series blr blr.displayname Gross bank liquidity ratio series bur bur.displayname Burden of personal debt series c_k c_k.displayname Real consumption series car car.displayname Capital adequacy ratio of banks series cg cg.displayname Capital gains on government bonds series cons cons.displayname Consumption at current prices series e_k_d e_k_d.displayname Number of equities demanded series e_k_s e_k_s.displayname Number of equities supplied by firms series er er.displayname Employment rate series f_b f_b.displayname Realized banks profits series f_b_t f_b_t.displayname Target profits of banks series f_cb f_cb.displayname Central bank “profits” series f_f f_f.displayname Realized entrepreneurial profits series f_f_t f_f_t.displayname Planned entrepreneurial profits series fd_b fd_b.displayname Dividends of banks series fd_f fd_f.displayname Dividends of firms series fu_b fu_b.displayname Retained earnings of banks series fu_b_t fu_b_t.displayname Target retained earnings of banks series fu_f fu_f.displayname Retained earnings of firms series fu_f_t fu_f_t.displayname Planned retained earnings of firms series g g.displayname Government expenditures series g_k g_k.displayname Real government expenditures series gd gd.displayname Government debt series gl gl.displayname Gross amount of new personal loans series gr_g gr_g.displayname growth_modb of real government expenditures series gr_k gr_k.displayname growth_modb of real capital stock series gr_pr gr_pr.displayname growth_modb rate of productivity series h_bd h_bd.displayname Cash required by banks series h_bs h_bs.displayname Cash supplied to banks series h_hd h_hd.displayname Households demand for cash series h_hs h_hs.displayname Cash supplied to households series h_s h_s.displayname Total supply of cash series hc_e hc_e.displayname Expected historical costs series i i.displayname Gross investment series i_k i_k.displayname Gross investment in real terms series in in.displayname Stock of inventories at current costs series in_k in_k.displayname Real inventories series in_k_t in_k_t.displayname Expected real inventories series in_k_e in_k_e.displayname Target level of real inventories series k k.displayname Capital stock series k_k k_k.displayname Real capital stock series l_fd l_fd.displayname Demand for loans by firms series l_fs l_fs.displayname Supply of loans to firms series l_hd l_hd.displayname Demand for loans by households series l_hs l_hs.displayname Loans supplied to households series m_d m_d.displayname Deposits demanded by households series m_s m_s.displayname Deposits supplied by banks series n n.displayname Employment level series n_fe n_fe.displayname Full Employment level series n_t n_t.displayname Desired employment level series ncar ncar.displayname Normal capital adequacy ratio of banks series nhuc nhuc.displayname Normal historic unit cost series nl nl.displayname Net flow of new loans to the household sector series nl_k nl_k.displayname Real flow of new loans to the household sector series npl npl.displayname Non Performing Loans series npl_k npl_k.displayname Proportion of Non Performing Loans series npl_ke npl_ke.displayname Expected proportion of Non Performing Loans series nuc nuc.displayname Normal unit cost series of_b of_b.displayname Own funds of banks series of_b_e of_b_e.displayname Short-run target for banks own funds series of_b_t of_b_t.displayname Long-run target for banks own funds series omegat omegat.displayname Target real wage for workers series p p.displayname Price level series p_bl p_bl.displayname Price of government bonds series p_e p_e.displayname Price of equities series pe pe.displayname Price earnings ratio series pi pi.displayname Price inflation series pr pr.displayname Labour productivity series psbr psbr.displayname Government deficit series q q.displayname Tobin’s q series r_b r_b.displayname Interest rate on government bills series r_b_bar r_b_bar.displayname Interest rate on bills - set exogenously series r_bl r_bl.displayname Interest rate on bonds series r_k r_k.displayname Dividend yield of firms series r_l r_l.displayname Interest rate on loans series r_ln r_ln.displayname Normal interest rate on loans series r_m r_m.displayname Interest rate on deposits series ra ra.displayname Random shock to expectations on real sales series rep rep.displayname Personal loans repayments series rr_b rr_b.displayname Real interest rate on bills series rr_l rr_l.displayname Real interest rate on loans series s s.displayname Sales at current prices series s_k s_k.displayname Real sales series s_k_e s_k_e.displayname Expected real sales series sigmas sigmas.displayname Realized inventories to sales ratio series sigmase sigmase.displayname Opening inventories to expected sales ratio series sigmat sigmat.displayname Target inventories to sales ratio series t t.displayname Taxes series u u.displayname Capital utilization proxy series uc uc.displayname Unit costs series v v.displayname Wealth of households series v_k v_k.displayname Real wealth of households series v_fma v_fma.displayname Investible wealth of households series w w.displayname Wage rate series wb wb.displayname The wage bill series y y.displayname Output at current prices (nominal GDP) series y_k y_k.displayname Real output series yd_hs yd_hs.displayname Haig-Simons measure of disposable income series yd_r yd_r.displayname Regular disposable income series yd_k_r yd_k_r.displayname Regular real disposable income series yd_k_r_e yd_k_r_e.displayname Expected regular real disposable income series yp yp.displayname Personal income ' Generate parameters series alpha1 alpha1.displayname Propensity to consume out of income series alpha2 alpha2.displayname Propensity to consume out of wealth series beta beta.displayname Parameter in expectation formations on real sales series betab betab.displayname Speed of adjustment of banks own funds series bot bot.displayname Bottom value for bank net liquidity ratio series delta delta.displayname Rate of depreciation of fixed capital series deltarep deltarep.displayname Ratio of personal loans repayments to stock of loans series eps eps.displayname Parameter in expectation formations on real disposable income series eps2 eps2.displayname Speed of adjustment of mark-up series epsb epsb.displayname Speed of adjustment in expected proportion of non-performing loans series epsrb epsrb.displayname Speed of adjustment in the real interest rate on bills series eta eta.displayname Ratio of new loans to personal income series eta0 eta.displayname Ratio of new loans to personal income - exogenous component series etan etan.displayname Speed of adjustment of actual employment to desiderd employment series etar etar.displayname Relation between the ratio of new loans to personal income and the interest rate on loans series gamma gamma.displayname Speed of adjustment of inventories to the target level series gamma0 gamma0.displayname Exogenous growth_modb in the real stock of capital series gammar gammar.displayname Relation between the real interest rate on loans and growth_modb in the stock of capital series gammau gammau.displayname Relation between the utilization rate and growth_modb in the stock of capital series lambda10 lambda10.displayname Parameter in households demand for deposits series lambda11 lambda11.displayname Parameter in households demand for deposits series lambda12 lambda12.displayname Parameter in households demand for deposits series lambda13 lambda13.displayname Parameter in households demand for deposits series lambda14 lambda14.displayname Parameter in households demand for deposits series lambda15 lambda15.displayname Parameter in households demand for deposits series lambda20 lambda20.displayname Parameter in households demand for bills series lambda21 lambda21.displayname Parameter in households demand for bills series lambda22 lambda22.displayname Parameter in households demand for bills series lambda23 lambda23.displayname Parameter in households demand for bills series lambda24 lambda24.displayname Parameter in households demand for bills series lambda25 lambda25.displayname Parameter in households demand for bills series lambda30 lambda30.displayname Parameter in households demand for bonds series lambda31 lambda31.displayname Parameter in households demand for bonds series lambda32 lambda32.displayname Parameter in households demand for bonds series lambda33 lambda33.displayname Parameter in households demand for bonds series lambda34 lambda34.displayname Parameter in households demand for bonds series lambda35 lambda35.displayname Parameter in households demand for bonds series lambda40 lambda40.displayname Parameter in households demand for equities series lambda41 lambda41.displayname Parameter in households demand for equities series lambda42 lambda42.displayname Parameter in households demand for equities series lambda43 lambda43.displayname Parameter in households demand for equities series lambda44 lambda44.displayname Parameter in households demand for equities series lambda45 lambda45.displayname Parameter in households demand for equities series lambdab lambdab.displayname Parameter determining dividends of banks series lambdac lambdac.displayname Parameter in households demand for cash series phi phi.displayname Mark-up on unit costs series phit phit.displayname Ideal mark-up on unit costs series psid psid.displayname Ratio of dividends to gross profits series psiu psiu.displayname Ratio of retained earnings to investment series ro ro.displayname Reserve requirement parameter series sigman sigman.displayname Parameter influencing normal historic unit costs series theta theta.displayname Income tax rate series top top.displayname Top value for bank net liquidity ratio series z1a z1a.displayname Is one if bank liquidity ratio is below bottom range series z1b z1b.displayname Is one if bank liquidity ratio is below bottom range series z2a z2a.displayname Is one if bank liquidity ratio is above top range series z2b z2b.displayname Is one if bank liquidity ratio is above top range series z3 z3.displayname Parameter in wage aspiration equation series z4 z4.displayname Parameter in wage aspiration equation series z5 z5.displayname Parameter in wage aspiration equation series xim1 xim1.displayname Parameter in the equation for setting interest rate on deposits series xim2 xim2.displayname Parameter in the equation for setting interest rate on deposits series omega0 omega0.displayname Parameter influencing the target real wage for workers series omega1 omega1.displayname Parameter influencing the target real wage for workers series omega2 omega2.displayname Parameter influencing the target real wage for workers series omega3 omega3.displayname Speed of adjustment of wages to target value ' Starting values for parameters alpha1 = 0.75 alpha2 = 0.064 beta = 0.5 betab = 0.4 gamma = 0.15 gamma0 = 0.00122 gammar = 0.1 gammau = 0.05 delta = 0.10667 deltarep = 0.1 eps = 0.5 eps2 = 0.8 epsb = 0.25 epsrb = 0.9 eta = 0.04918 eta0 = 0.07416 etan = 0.6 etar = 0.4 theta = 0.22844 lambda20 = 0.25 lambda21 = 2.2 lambda22 = 6.6 lambda23 = 2.2 lambda24 = 2.2 lambda25 = 0.1 lambda30 = -0.04341 lambda31 = 2.2 lambda32 = 2.2 lambda33 = 6.6 lambda34 = 2.2 lambda35 = 0.1 lambda40 = 0.67132 lambda41 = 2.2 lambda42 = 2.2 lambda43 = 2.2 lambda44 = 6.6 lambda45 = 0.1 lambdab = 0.0153 lambdac = 0.05 xim1 = 0.0008 xim2 = 0.0007 ro = 0.05 sigman = 0.1666 sigmase = 0.16667 sigmat = 0.2 phi = 0.26417 phit = 0.26417 psid = 0.15255 psiu = 0.92 omega0 = -0.20594 omega1 = 1 omega2 = 2 omega3 = 0.45621 ' Values for exogenous variables add_bl = 0.02 bandT=.01 bandB=.01 bot = 0.05 gr_g=.03 gr_pr = 0.03 n_fe = 87.181 ncar = 0.1 npl_k = 0.02 r_b_bar = 0.035 r_ln = 0.07 ra = 0 top = 0.12 ' Initial values for stocks b_bd = 4388930 b_bs = 4389790 b_cbd = 4655690 b_cbs = 4655690 b_hd = 33396900 b_hs = b_hd b_s = 42484800 bl_d = 840742 bl_s = bl_d gd = 57728700 e_k_d = 5112.6001 e_k_s = e_k_d h_bd = 2025540 h_bs = h_bd h_hd = 2630150 h_hs = h_hd h_s = h_bd + h_hd in = 11585400 in_k = 2064890 in_k_e = 2405660 in_k_t = in_k k = 127444000 k_k = 17768900 ' l_fd = 15457910 l_fd = 15962900 l_fs = l_fd l_hd = 21606600 l_hs = l_hd m_d = 40510800 m_s = m_d of_b = 3473280 of_b_e = 3782430 of_b_t = 3638100 v = 165395000 v_fma = 159291000 v_k = 22576100 ' Initial values for other endogenous add_l = 0.04592 blr = 0.1091 bur = 0.06324 c_k = 7334240 car = 0.09245 cons = 52603100 er = 1 f_b = 1744130 f_b_t = 1744140 f_f = 18081100 f_f_t = 18013600 fd_b = 1325090 fd_f = 2670970 fu_b = 419039 fu_f = 15153800 fu_f_t = 15066200 g = 16755600 g_k = 2336160 gl = 2775900 gr_k = 0.03001 i = 16911600 i_k = 2357910 n = n_fe n_t = n_fe nhuc = 5.6735 nl = 683593 nl_k = 95311 npl = 309158 npl_ke = 0.02 nuc = 5.6106 omegat = 112852 p = 7.1723 p_bl = 18.182 p_e = 17937 pe = 5.07185 pi = 0.0026 pr = 138659 psbr = 1894780 q = 0.77443 r_b = 0.035 r_bl = 0.055 r_k = 0.03008 r_l = 0.06522 r_m = 0.0193 rep = 2092310 rr_b = 0.03232 rr_l = 0.06246 s = 86270300 s_k = 12028300 s_k_e = s_k t = 17024100 u = 0.70073 uc = 5.6106 w = 777968 wb = 67824000 y = 86607700 y_k = 12088400 yd_r = 56446400 yd_k_r = 7813270 yd_k_r_e = 7813290 yp = 73158700 z1a = 0 z1b = 0 z2a = 0 z2b = 0 ' Create a model object, and name it growth_modb model growth_modb ' Box 11.1 Firms' equations ' Real output decision ' Real output - eq. 11.1 growth_modb.append y_k = s_k_e + in_k_e - in_k(-1) ' Expected real sales - eq. 11.2 growth_modb.append s_k_e = beta*s_k + (1 - beta)*s_k(-1)*(1 + (gr_pr + ra)) ' Long-run inventory target - eq. 11.3 growth_modb.append in_k_e = in_k(-1) + gamma*(in_k_t - in_k(-1)) ' Short-run inventory target - eq. 11.4 growth_modb.append in_k_t = sigmat*s_k_e ' Actual real inventories - eq. 11.5 growth_modb.append in_k = in_k(-1) + y_k - s_k - npl/uc ' Real capital stock - eq. 11.6 growth_modb.append k_k = k_k(-1)*(1 + gr_k) ' Growth of real capital stock - eq. 11.7 growth_modb.append gr_k = gamma0 + gammau*u(-1) - gammar*rr_l ' Capital utilization proxy - eq. 11.8 growth_modb.append u = y_k/k_k(-1) ' Real interest rate on loans - eq. 11.9 growth_modb.append rr_l = (1 + r_l)/(1 + pi) - 1 ' Rate of price inflation - eq. 11.10 growth_modb.append pi = d(p)/p(-1) ' Real gross investment - eq. 11.11 growth_modb.append i_k = d(k_k) + delta*k_k(-1) ' Box 11.2 Firms' equations ' Actual real sales - eq. 11.12 growth_modb.append s_k = c_k + g_k + i_k ' Value of realized sales - eq. 11.13 growth_modb.append s = s_k*p ' Inventories valued at current cost - eq. 11.14 growth_modb.append in = in_k*uc ' Nominal gross investment - eq. 11.15 growth_modb.append i = i_k*p ' Nominal value of fixed capital - eq. 11.16 growth_modb.append k = k_k*p ' Nominal GDP - eq. 11.17 growth_modb.append y = s_k*p + d(in_k)*uc ' Box 11.3 - Firms' equations ' Real wage aspirations - eq. 11.18 growth_modb.append omegat = exp(omega0 + omega1*log(pr) + omega2*log(er + z3*(1 - er) - z4*bandT + z5*bandB)) ' Employment rate - eq. 11.19 growth_modb.append er = n(-1)/n_fe(-1) ' Switch variables - eq. 11.20 growth_modb.append z3 = (er>(1-bandB))*(er<=(1+bandT)) growth_modb.append z4 = (er>(1+bandT)) growth_modb.append z5 = (er<(1-bandB)) ' Nominal wage - eq. 11.21 growth_modb.append w = w(-1) + omega3*(omegat*p(-1) - w(-1)) ' Labour productivity - eq. 11.22 growth_modb.append pr = pr(-1)*(1 + gr_pr) ' Desired employment - eq. 11.23 growth_modb.append n_t = y_k/pr ' Actual employment - eq. 11.24 growth_modb.append n = n(-1) + etan*(n_t - n(-1)) ' Nominal wage bill - eq. 11.25 growth_modb.append wb = n*w ' Actual unit cost - eq. 11.26 growth_modb.append uc = wb/y_k ' Normal unit cost - eq. 11.27 growth_modb.append nuc = w/pr ' Normal historic unit cost - eq. 11.28 growth_modb.append nhuc = (1 - sigman)*nuc + sigman*(1 + r_ln(-1))*nuc(-1) ' Box 11.4 Firms' equations ' Normal-cost pricing - eq. 11.29 growth_modb.append p = (1 + phi)*nhuc ' Actual mark-up - eq. 11.30 growth_modb.append phi = phi(-1) + eps2*(phit(-1) - phi(-1)) ' Ideal mark-up - eq. 11.31 growth_modb.append phit = (fd_f + fu_f_t + r_l(-1)*(l_fd(-1) - in(-1)))/((1 - sigmase)*s_k_e*uc + (1 + r_l(-1))*sigmase*s_k_e*uc(-1)) ' Expected historical costs - eq. 11.32 hc_e = (1 - sigmase)*s_k_e*UC + (1 + r_l(-1))*sigmase*s_k_e*UC(-1) ' Opening inventories to expected sales ratio - eq. 11.33 growth_modb.append sigmase = in_k(-1)/s_k_e ' Planned entrepeneurial profits of firms - eq. 11.34 growth_modb.append f_f_t = fu_f_t + fd_f + r_l(-1)*(l_fd(-1) - in(-1)) ' Planned retained earning of firms - eq. 11.35 growth_modb.append fu_f_t = psiu*i(-1) ' Dividends of firms - eq. 11.36 growth_modb.append fd_f = psid*f_f(-1) ' Box 11-5 - Firms' equations ' Realized enterpreneurial profits - eq. 11.37 growth_modb.append f_f = s - wb + d(in) - r_l(-1)*in(-1) ' Realized enterpreneurial profits - eq. 11.37A ' growth_modb.append f_f = S - ((1 - sigmas)*s_k*UC + (1 + r_l(-1))*sigmas*s_k*UC(-1)) ' above equation requires definition of opening inventories to sales ratio ' growth_modb.append sigmas = in_k(-1)/s_k ' Retained earnings of firms - eq. 11.38 growth_modb.append fu_f = f_f - fd_f - r_l(-1)*(l_fd(-1) - in(-1)) + r_l(-1)*npl ' Demand for loans by firms - eq. 11.39 growth_modb.append l_fd = l_fd(-1) + i + d(in) - fu_f - d(e_k_s)*p_e - npl ' Defaulted loans - eq. 11.40 growth_modb.append npl = npl_k*l_fs(-1) ' Supply of equities issued by firms - eq. 11.41 growth_modb.append e_k_s = e_k_s(-1) + ((1 - psiu)*i(-1))/p_e ' Dividend yield of firms - eq. 11.42 growth_modb.append r_k = fd_f/(p_e(-1)*e_k_d(-1)) ' Price earnings ratio - eq. 11.43 growth_modb.append pe = p_e/(f_f/e_k_s(-1)) ' Tobin-s q ratio - eq. 11.44 growth_modb.append q = (e_k_s*p_e)/(k + in + l_fd) ' Box 11.6 Households' equations ' Personal income - eq. 11.45 growth_modb.append yp = wb + fd_f + fd_b + r_m(-1)*m_d(-1) + r_b(-1)*b_hd(-1) + bl_s(-1) ' Income taxes - eq. 11.46 growth_modb.append t = theta*yp ' Regular disposable income - eq. 11.47 growth_modb.append yd_r = yp - t - r_l(-1)*l_hd(-1) ' Haig-Simons disposable income - eq. 11.48 growth_modb.append yd_hs = yd_r + cg ' Capital gains - eq. 11.49 growth_modb.append cg = d(p_bl)*bl_d(-1) + d(p_e)*e_k_d(-1) + d(of_b) ' Wealth - eq. 11.50 growth_modb.append v = v(-1) + yd_r - cons + d(p_e)*e_k_d(-1) + d(p_bl)*bl_s(-1) + d(of_b) ' Real stock of wealth - eq. 11.51 growth_modb.append v_k = v/p ' Consumption - eq. 11.52 growth_modb.append cons=c_k*p ' Real consumption - eq. 11.53 growth_modb.append c_k = alpha1*(yd_k_r_e + nl_k) + alpha2*v_k(-1) ' Expected real regular disposable income - eq. 11.54 growth_modb.append yd_k_r_e = eps*yd_k_r + (1 - eps)*(yd_k_r(-1)*(1 + gr_pr)) ' Real regular disposable income - eq. 11.55 growth_modb.append yd_k_r = yd_r/p - d(p)*v_k(-1)/p ' Box 11.7 Households' equations ' Gross amount of new personal loans - eq. 11.56 growth_modb.append gl = eta*yd_r ' New loans to personal income ratio - eq. 11.57 growth_modb.append eta = eta0 - etar*rr_l ' Net amount of new personal loans - eq. 11.58 growth_modb.append nl = gl - rep ' Personal loans repayments - eq. 11.59 growth_modb.append rep = deltarep*l_hd(-1) ' Demand for personal loans - eq. 11.60 growth_modb.append l_hd = l_hd(-1) + gl - rep ' Real amount of new personal loans - eq. 11.61 growth_modb.append nl_k = nl/p ' Burden of personal debt - eq. 11.62 growth_modb.append bur = (rep + r_l(-1)*l_hd(-1))/yd_r(-1) ' Box 11.8 Households' equations - portfolio decisions ' Demand for deposits - eq. 11.63 - inactive for adding-up constraint ' growth_modb.append m_d = v_fma(-1)*(lambda10 - lambda12*r_b(-1) + lambda11*r_m(-1) - lambda14*r_k(-1) - lambda13*r_bl(-1) - lambda15*yd_r/V) ' Demand for bills - eq. 11.64 growth_modb.append b_hd = v_fma(-1)*(lambda20 + lambda22*r_b(-1) - lambda21*r_m(-1) - lambda24*r_k(-1) - lambda23*r_bl(-1) - lambda25*yd_r/v) ' Demand for bonds - eq. 11.65 growth_modb.append bl_d = v_fma(-1)*(lambda30 - lambda32*r_b(-1) - lambda31*r_m(-1) - lambda34*r_k(-1) + lambda33*r_bl(-1) - lambda35*yd_r/v)/p_bl ' Demand for equities - eq. 11.66 - normalized to get the price of equities growth_modb.append p_e = v_fma(-1)*(lambda40 - lambda42*r_b(-1) - lambda41*r_m(-1) + lambda44*r_k(-1) - lambda43*r_bl(-1) - lambda45*yd_r/v)/e_k_d ' Money deposits - as a residual - eq. 11.67 growth_modb.append m_d = v_fma - b_hd - p_e*e_k_d - p_bl*bl_d + l_hd ' Investible wealth - eq. 11.68 growth_modb.append v_fma = v - h_hd - of_b ' Investible wealth - eq. 11.68A ' growth_modb.append v_fma = m_d + b_hd + p_bl*bl_d + p_e*e_k_d ' Households' demand for cash - eq. 11.69 growth_modb.append h_hd = lambdac*cons ' Stock market equilibrium - eq. 11.70 growth_modb.append e_k_d = e_k_s ' Box 11.9 Government's equations ' Pure government expenditures - eq. 11.71 growth_modb.append g = g_k*p ' Real government expenditures - eq. 11.72 growth_modb.append g_k = g_k(-1)*(1 + gr_g) ' Government deficit - eq. 11.73 growth_modb.append psbr = g + bl_s(-1) + r_b(-1)*(b_bs(-1) + b_hs(-1)) - t ' New issues of bills - eq. 11.74 growth_modb.append b_s = b_s(-1) + g - t - d(bl_s)*p_bl + r_b(-1)*(b_hs(-1) + b_bs(-1)) + bl_s(-1) ' Government debt - eq. 11.75 growth_modb.append gd = b_bs + b_hs + bl_s*p_bl + h_s ' Box 11.10 The Central bank's equations ' Central bank profits - eq. 11.76 growth_modb.append f_cb = r_b(-1)*b_cbd(-1) ' Bonds are supplied on demand - eq. 11.77 growth_modb.append bl_s = bl_d ' Household bills supplied on demand - eq. 11.78 growth_modb.append b_hs = b_hd ' Cash supplied on demand - eq. 11.79 growth_modb.append h_hs = h_hd ' Reserves supplied on demand - eq. 11.80 growth_modb.append h_bs = h_bd ' Total supply of cash - eq. 11.81 growth_modb.append h_s = h_bs + h_hs ' Central bank demand for bills - eq. 11.82 growth_modb.append b_cbd = h_s ' Supply of bills to Central bank - eq. 11.83 growth_modb.append b_cbs = b_cbd ' Interest rate on bills set exogenously - eq. 11.84 ' growth_modb.append r_b = r_b_bar ' Long term interest rate - eq. 11.85 growth_modb.append r_bl = r_b + add_bl ' Price of long-term bonds - eq. 11.86 growth_modb.append p_bl = 1/r_bl ' Box 11.11 Commercial banks' equations ' Bank deposits supplied on demand - eq. 11.87 growth_modb.append m_s = m_d ' Loans to firms supplied on demand - eq. 11.88 growth_modb.append l_fs = l_fd ' Personal loans supplied on demand - eq. 11.89 growth_modb.append l_hs = l_hd ' Reserve requirement of banks - eq. 11.90 growth_modb.append h_bd = ro*m_s ' Bills supplied to banks - eq. 11.91 growth_modb.append b_bs = b_bs(-1) + d(b_s) - d(b_hs) - d(b_cbs) ' Balance sheet constraint of banks - eq. 11.92 growth_modb.append b_bd = m_s + of_b - l_fs - l_hs - h_bd ' Bank liquidity ratio - eq. 11.93 growth_modb.append blr = b_bd/m_s ' Deposit interest rate - eq. 11.94 growth_modb.append r_m = r_m(-1) + z1a*xim1 + z1b*xim2 - z2a*xim1 - z2b*xim2 ' Mechanism for determining changes to the interest rate on deposits - eqs 11.95-97 growth_modb.append z2a = (blr(-1)>(top+.05)) growth_modb.append z2b = (blr(-1)>top) growth_modb.append z1a = (blr(-1)<=bot) growth_modb.append z1b = (blr(-1)<=(bot-.05)) ' Box 11.12 - Commercial banks' equations ' Loan interest rate - eq. 11.98 growth_modb.append r_l = r_m + add_l ' Long-run own funds target - eq. 11.99 growth_modb.append of_b_t = ncar*(l_fs(-1) + l_hs(-1)) ' Short-run own funds target - eq.11.100 growth_modb.append of_b_e = of_b(-1) + betab*(of_b_t - of_b(-1)) ' Target retained earning of banks - eq. 11.101 growth_modb.append fu_b_t = of_b_e - of_b(-1) + npl_ke*l_fs(-1) ' Expected proportion of non-performing loans - eq. 11.102 growth_modb.append npl_ke=epsb*npl_ke(-1)+(1-epsb)*npl_k(-1) ' Dividends of banks - eq. 11.103 growth_modb.append fd_b = f_b - fu_b ' Target profits of banks - eq. 11.104 growth_modb.append f_b_t = lambdab*y(-1) + (of_b_e - of_b(-1) + npl_ke*l_fs(-1)) ' Actual profits of banks - eq. 11.105 growth_modb.append f_b = r_l(-1)*(l_fs(-1) + l_hs(-1) - npl) + r_b(-1)*b_bd(-1) - r_m(-1)*m_s(-1) ' Lending mark-up over deposit rate - eq. 11.106 growth_modb.append add_l = (f_b_t - r_b(-1)*b_bd(-1) + r_m*(m_s(-1) - (1 - npl_ke)*l_fs(-1) - l_hs(-1)))/((1 - npl_ke)*l_fs(-1) + l_hs(-1)) ' Actual retained earnings - eq. 11.107 growth_modb.append fu_b = f_b - lambdab*y(-1) ' Own funds of banks - eq. 11.108 growth_modb.append of_b = of_b(-1) + fu_b - npl ' Actual capital capacity ratio - eq. 11.109 growth_modb.append car = of_b/(l_fs + l_hs) ' Redundant equation - eq. 11.110A ' b_bs = b_bd ' Interest rate on bills - eq. 11.111 growth_modb.append r_b = (1 + rr_b)*(1 + pi) - 1 ' Target real interest rate on bills - eq. 11.112 growth_modb.append rr_b_t = (1 + r_b)/(1 + pi) - 1 ' Real interest rate on bills - eq. 11.113 growth_modb.append rr_b = rr_b(-1) + epsrb*(rr_b_t - rr_b(-1)) ' end of GROWTHb model ' Select the baseline scenario growth_modb.scenario baseline ' Set simulation sample smpl 1947 @last ' Solve the model for the current sample growth_modb.solve(i=p) smpl @all ' store variable to be shocked to the baseline genr gr_g_0 = gr_g ' Increase the rate of growth in government expenditure smpl 1960 @last gr_g = 0.035 smpl @all ' Select alternative Scenario 2c growth_modb.scenario(n, a="_2c") "Scenario 2c" ' Set simulation sample smpl 1947 2031 ' Solve the model for the current sample ' NOTE: the model will crash, with the current parameter values, ' extending the simulation growth_modb.solve(i=p) ' Store shocked value to scenario genr gr_g_2c =gr_g ' and get back shocked variable to its baseline value gr_g = gr_g_0 ' Creates charts from simulated variables ' Creates the chart in Figure 11.6A smpl 1955 2030 graph fig11_6a.line y_k_2c/y_k_2c(-1)-1 fig11_6a.options linepat fig11_6a.setelem(1) lcolor(blue) lwidth(2) lpat(1) fig11_6a.name(1) Growth rate of real output fig11_6a.addtext(t,just(c), font("Arial", 12, +b)) Figure 11.6A: Evolution of the growth rate of real output\nfollowing a permanent increase in govt exp. growth rate show fig11_6a ' Creates the chart in Figure 11.6B smpl 1955 2030 graph fig11_6b.line r_b_2c fig11_6b.options linepat fig11_6b.setelem(1) lcolor(blue) lwidth(2) lpat(1) fig11_6b.name(1) Interest rate on bills fig11_6b.addtext(t,just(c)) Figure 11.6B: Evolution of the nominal interest rate on bills\nfollowing a permanent increase in govt exp. growth rate show fig11_6b