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This paper describes modifications to, and further developments of, the supply block in the Secretariat's INTERLINK world model as of the autumn of 1985. The objective of the work was to strengthen the role of supply side elements, in particular profitability, in the model. In the process, stockbuilding was endogenised, assigning to inventories an important buffer role between sales and output in the dynamic adjustment process. Price formation has been linked more coherently to the revised supply structure via a dual cost function, and labour supply has been endogenised.

The equations described in this paper have been incorporated in the latest version of INTERLINK, the simulation properties of which will be described in a separate forthcoming working paper, "The Structure and Simulation Properties of the OECD INTERLINK Model: An Overview" ...

While the philosophy behind the supply block has not changed since its initial version, each of the block's behavioural equations as well as the parameters of the production functions have been substantially modified. These modifications have been motivated, in general, by a wish to improve the consistency of the block and to relax some of the constraints imposed. Consistency has been improved via a minor modification to the procedure for estimating the parameters of the production function, as well as from the inclusion of a measure of "normal" inventory growth in the demand term in the output equation. In the new version, the equilibrium stock/output ratio is no longer treated as a constant; tax considerations and domestic price effects are now included in the business energy price equations, and the dynamic adjustment of the factor demand equations has been made more general. Finally, some research on potential output, based on the revised production model, is reported ...

This paper reviews the simulation properties of a recent version of the OECD Secretariat's international macroeconomic model, INTERLINK, a version which embodies much of the empirical work reported in recent Working Papers and summarised in a separate companion paper ESD Working Paper No. 46. The material presented is intended to provide a general overview of model properties and some of the key mechanisms involved ...

This paper examines the hypothesis that commodity price trends are useful indicators of OECD price developments. After a discussion of statistical techniques to assess the time series properties of individual price indices, integration and cointegration tests are conducted on a wide set of individual and aggregate commodity price indices and consumer price indices for the major seven OECD countries. The results of the analysis suggest that there is no clear evidence of any equilibrium relationship between levels of consumer and commodity prices. But relations between changes in a number of commodity prices such as metals and agricultural raw material prices and consumer prices may be established. The stability over time of such relationships is also tested ...

This paper discusses the relative strengths and weaknesses of alternative solution methods in applied general equilibrium (AGE) analysis. The particular focus is not on the technical properties of solution algorithms, but instead deals with the general issue of using linearised approximation methods, more popularly referred to as the Johansen class of AGE models, relative to models which are solved in level form via solution of a system of non-linear equations. Particular attention is given to the practical aspects of AGE empirical work with special emphasis on problems encountered in multi-country modelling.

This paper describes an international sectoral data base, the ISDB, which has been created at the OECD as part of the continuing study of industrial structure and economic performance in OECD Member countries. This data base is one which relates primarily to sectoral output and factor resource use in thirteen OECD Member countries. In the context of recent OECD work, substantial use was made of the ISDB in preparing the recent OECD study, "Structural Adjustment and Economic Performance" (1987), and in other studies. Part II of the paper reports an analysis of a number of summary statistics derived from the data base for the period 1970 to 1985; specifically those related to economic structure and sectoral growth over the period ...

Recent swings in fertility rates, combined with anticipated increases in life expectancy, are expected to result in a significant increase in the number and proportion of elderly persons in the first half of the next century. This "ageing" of OECD populations is expected to have widespread impacts, affecting labour markets, the composition and level of consumption and output, national rates of saving and the rate of capital accumulation, etc. A widely recognized effect of ageing will be the pressures it will place on public sector finances as the share of future output transferred to a large dependent population rises. This paper discusses some of the potential economic impacts of ageing. It also presents an analysis of its impacts on public pension financing requirements, with particular emphasis on selected OECD countries -- Germany, Japan, Sweden and the United States. It is shown that, where desirable, future increases in retirement age and benefit reductions could help reduce ...

This paper reviews the accuracy of OECD projections over the 1982-1987 period. It is shown that, although the evolution of the economic climate was correctly projected, projection errors for economic activity and inflation varied significantly both through the period under consideration and between countries. But the average absolute error in GNP over the entire 1982/87 period was less than 1 percentage point. The biggest errors were made in the first half of the period and were more important for the smaller countries. An attempt is made to assess the likely impact of differences between assumed and realised economic policies, energy prices and exchange rates on the size and direction of the projection errors ...

This paper presents an application to Ecuador of a computable general equilibrium model with a financial component, following the lead of F. Bourguignon, W. Branson and J. de Melo. Their macro-micro model was introduced in Technical Paper No.1 "Macroeconomic Adjustment and Income Distribution. A Macro-micro Simulation Model".

The authors first review the crisis of the Ecuadorian economy, the stabilization programmes that were implemented by governments and the economic effects of these programmes. Then the model and the corresponding data base are presented and used to perform three dynamic simulations. In the first case, there is no adjustment; in the second simulation, all public expenditures are reduced by the same percentage; and in the third simulation, the annual growth in money supply is reduced. For each simulation, the authors display the effects on growth, imbalances and income distribution. Finally a sensitivity analysis has been undertaken in order to assess the impact ...

This study examines the role of public investment in determining the pattern of agricultural development in Pakistan. The focus is on investment in irrigation, which is seen to be the key to providing food self-sufficiency and allowing Pakistan to sustain a flows of net agricultural exports. Together with the physical and institutional infrastructure supporting agriculture, these investments set the stage and the pattern for the country's economic development.

Agricultural development in Pakistan has in the past century and a half been driven mainly by horizontal expansion: increasing the area under the plough by increasing water control. Since the late 1960s, intensification has increased, though this has remained limited to individual crops and has not evolved into a broad strategy. Because of the environmental and other limits to further expansion of controlled water flows, the future calls for a strategy of more efficient use of available land and water, and a more ...

The child-care debate is fuelled by various protagonists - early-childhood experts, educators, sociologists, economists - who each tend to consider only one aspect of this multifaceted problem. Consequently, the debate is often confused and inconclusive, particularly when it comes to establishing government policy.

To ensure rationality in such public decisions, a general framework is needed to encompass all relevant aspects. This paper proposes a methodological approach to designing such a framework.

This study provides an economic and econometric analysis of agriculture in the economic cycle, with special reference to the recent experience of Brazil. Part One of the paper discusses the economic theory and points to the relevance of classical texts for analysis of agriculture's role in the economic crisis facing developing countries. Part Two of the paper tests the hypothesis that agriculture exercises a stabilising role in the economic cycle using statistical and econometric procedures. It offers a novel application of tests of cointegration and stationarity and concludes on this basis that agriculture does indeed exercise a stabilising role in the economic cycle.

The study was concluded under the Development Centre's programme "Developing Country Agriculture and International Economic Trends", directed by Ian Goldin ...

This paper surveys various estimates of the macroeconomic implications of reducing greenhouse gas emissions. Most available studies focus on policies to reduce CO2 emissions and are limited to the costs of such policies. The survey first examines the key factors shaping baseline emission scenarios. It then looks at the aggregate cost of emission reductions, as shown by both global and country-specific models, and discusses the key determinants of the model outcomes. The paper also briefly reviews other options for reducing greenhouse gas emissions and draws some more general lessons for the policy response to the threat of climate change ...

1. During the 1980s, following the Mexican payments crisis of August 1982, a number of debt "plans" and "strategies" have been introduced, but overall progress in resolving the situation has been slow. This paper results from a project to investigate the relationship between macroeconomic developments in OECD countries and those in debtor countries. The aim is to develop tools that can help to throw light on the importance of international linkages, including those between OECD and debtor countries, in order to understand better why many of the hopes and expectations of the various debt plans have not been realised.
2. This paper presents a set of models for Latin America (DEMOD) that can be used to analyze the impact of the world macroeconomy on the economies of Latin America; these have been designed to focus in particular on growth and debt servicing capacity and to trace the development of creditworthiness indicators. In addition, debt accounting models for the highly indebted ...

Models of trading economies have become very large in dimensions and complex in structure. This paper seeks conditions under which it is possible to aggregate the production and consumption of groups of commodities in "industries": commodity groups sharing some common characteristics and behaviour. The most extreme form of aggregation is the simultaneous aggregation of the same commodities using the same aggregator functions on both the production and consumption sides of the model. This is called "complete aggregation". If this can be done, the competitive equilibrium can be determined in two stages and the commodity dimensions of a model can be reduced drastically, perhaps to very few. In other cases it is possible to aggregate commodities only on the production or the consumption side of the model. Such aggregation will simplify the production or consumption side and allow the derivation of new results.

Conditions which are sufficient for aggregation in production or ...

• Adjustment does not necessarily increase poverty • Adjusting before a crisis reduces social costs • Refusal to adjust and the suspension of imports leads to self-centred underdevelopment, which is socially much more costly • The choice of macroeconomic stabilisation measures is important: the same result can be obtained with higher or lower social costs • Some structural adjustment measures have beneficial social effects but others, like the reorganisation of public enterprises, involve high costs • Action by donor countries is indispensable to offset the increase in poverty linked to stabilisation measures and to the reduction of employment in public enterprises

This paper examines the recent slowdown in bank lending that has affected several large OECD countries. The analysis begins with a description of the importance of bank credit in the financial systems of the countries considered. The origins of the lending slowdown are analysed - - including the importance of deteriorating bank balance sheets and the BIS capital rules - - as well as its potential to depress economic activity. The paper concludes with a discussion of how monetary policy should react to unusually sluggish bank lending ...

The increasing, and ultimately complete, fixity of exchange rates between countries entering into the European Monetary Union (EMU) throws the burden of adjustment onto labour and product markets. At present, most countries adhering to the exchange rate mechanism of the EMS have relatively rigid labour markets, implying that, in the absence of structural reform, some countries may experience higher unemployment in moving towards the low inflation rates and modest deficit levels that are prerequisites for entering EMU. Given the limited availability of macroeconomic tools, some pressures to discriminate against imports from non-EC countries may emerge. Even after EMU, remaining differences in industrial and trading structures as well as in the supply and demand shocks experienced by individual Member countries will impose some need for localised adjustment. The relative wage and price changes involved in such adjustments may have disruptive effects on income and employment if labour ...

This paper presents an assessment of the results of Brady plans for debtor countries which have implemented such agreements (Costa Rica, Mexico, the Philippines, Uruguay and Venezuela). First, we show that the relatively successful Mexican case cannot be generalized, due to the great diversity of the agreements signed. Hence a case-by-case analysis is essential. Second, we attempt to measure the distribution of wealth gains and losses among Brady plan participants. An original feature of this attempt is that we explicitly take account of the role of multilateral creditors in the burden sharing. In a simplified framework, Brady plans are interpreted as a "gift" from official creditors, which is, with one exception, fairly equally shared between banks and debtors. On completion of this analysis, the assessment is modified on a case-by-case basis in order to take account of efficiency gains specifically linked to the Brady deals. This does not lead to very optimistic conclusions about ...

The paper examines the effect of differing policies in the post-independence period on the agricultural and overall economic performance of Zambia and Zimbabwe. It focuses on the interaction between macroeconomic and agricultural policy reforms. It shows that macro and micro reforms need to be closely linked and that both are critical to sectoral performance. The paper identifies a number of reform options and examines their sequencing at the national and agricultural level. Such reform will greatly improve the performance of the Zambian and Zimbabwean agricultural sectors, enhancing food security, employment and economic growth ...