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The aim of this paper is to provide an assessment of the medium-term financial strategies operating in and available to OECD economies. Three issues are discussed: first, the rationale for the increasing adoption of medium-term budgetary and monetary objectives; second, the appropriate criteria for the determination of medium-term policy norms, and the institutional means through which these are implemented; and third, the problems of ensuring consistency between short-term policies and medium-term goals. Underlying these issues is the theme of monetary and fiscal policy co-ordination and the medium-term effectiveness of demand management. To the extent that central banks can contain the pressures stemming from the mix of restrictive monetary targets and expansionary budgets, monetary and fiscal policies might be assigned to different objectives - inflation control and short-term employment support respectively (although monetary restraint would not free expansionary fiscal action ...

The international financial linkage block of the OECD Secretariat's multi-country model, INTERLINK, is based on a portfolio balance model of exchange rate determination. International consistency is ensured by cross country restrictions on parameters imposed during estimation (1). However, in an earlier version of the model, the specification of the domestic financial sector for each country was too rudimentary for simulation analysis under alternative monetary policy assumptions. The main element missing from this version of the model was an explicit formulation of the money demand and supply process (2). This gap has been filled in the version of the model reported in this study, which opens the way for a more comprehensive set of alternative policy regimes under which the model can be run, notably: non-accommodating monetary policy; managed floating; fixed exchange rates; and floating with accommodating monetary policy. These will be elaborated upon in more detail below.

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This paper describes the method of calculation of competitiveness indicators and effective exchange rates that are published half-yearly by the Secretariat in the Economic Outlook. This calculation is based on a double-weighting principle: the procedure calculates the relative importance of different countries on each market according to the relative importance of these markets for the country in question. The calculations include the impact of the domestic producer in each market, i.e. a particular country is considered as a competitor to other exporters to its own market. On the other hand, in calculating the importance of each competitor to a given country the share of the country in question is excluded in every market, i.e. a country cannot compete with itself. Weighting matrices have been constructed for each year, starting in 1970, and have been used to define and compute relative indices of costs, prices and exchange rates ...

This paper discusses how monetary policy might assist macroeconomic performance in the second half of the 1980s in the G-10 countries, without compromising the medium-term objective of price stability. From this perspective, the recent stance of monetary policy is assessed, as well as its possible effects on output and inflation. The paper also examines the gains that might be expected from a short-run monetary stimulus, internationally coordinated, against the risks that might be implied for central bank credibility ...

This paper presents new housing equation estimates for the major seven countries in INTERLINK, the OECD world econometric model. Theoretical and empirical aspects of housing investment behaviour are discussed in a model context. Estimation results using an adjustment model for the stock of houses are presented and discussed, together with simulations comparing the performances of the old and new housing blocks in the model. The results embody an important improvement in understanding the aggregate determination of aggregate residential investment ...

This paper presents a macro simulation model to quantify the effects of stabilisation packages on the distribution of income and wealth. It is a macro-micro model since it combines macroeconomic aspects with the microeconomic optimising behaviour characteristic of computable general equilibrium models. It can be applied to many developing countries by changing the institutional characteristics that describe commodity markets, financial markets and labour markets. Since the simulation package incorporated quite a large number of closures, the model is referred to as a "maquette."

The paper closes with illustrative simulations of the maquette showing how the distribution of income and wealth of a primary exporting economy is likely to be affected by alternative fiscal, monetary and exchange rate policies in response to a reduction in the availability of external funds to finance a fiscal deficit ...

This paper presents business sector supply blocks for thirteen smaller OECD economies. The starting point is the approach adopted by the Economics and Statistics Department for the major economies. The structure of the supply blocks is explained and estimation results are presented. Results from several diagnostic simulations using the new blocks are also presented. Finally the way the supply blocks can be used to compare aggregate supply and demand is set out ...

This paper is a state-of-the-art report on the scope and efficacy of macroeconomic policies, both demand-management and supply-side, in relation to the level and composition of aggregate domestic savings (household, corporate, and government) performance in developing countries. Its central focus is on the extent to which macroeconomic policies help or hinder the optimal mobilisation and allocation of voluntary and contractual savings. It analyses: the impact of fiscal policies (fiscal balance, taxation, tax incentives); fiscal reforms and savings; and the interaction between Government and private savings; the financial repression and inflationary finance as contributory factors to low domestic savings; implications of financial liberalisation for savings and investment; the linkages between formal and informal finance; the regulatory, prudential, and developmental role of central banks; exchange rate and external finance policies and their bearing on capital flight and inflows of ...

Industrial subsidies should ideally be measured in ways that permit comparisons across subsidy instruments and countries, and that facilitate subsequent economic analysis of the effects of subsidisation. This paper deals with a number of conceptual issues that arise from these requirements. It first covers some definitional issues, concluding that subsidies should be measured broadly to include a wide range of instruments and both direct and indirect subsidy schemes. The paper then discusses measurement concepts for a range of instruments available to governments ...

The paper examines evidence concerning the impact of financial liberalisation and innovation on monetary policy. The indicator value of monetary aggregates and the role of liquidity constraints in the transmission mechanism affecting aggregate demand are examined. Countries where financial liberalisation has led to problems with the role of monetary aggregates in general also display evidence of a reduced role for liquidity constraints in aggregate demand behaviour. The ability of the authorities to influence market-determined interest rates, a key aspect of monetary transmission in markets where liquidity constraints are not binding, is also examined ...

This paper presents work on wage/price blocks for the smaller OECD countries which has been implemented in OECD's world econometric model, INTERLINK. The paper discusses theoretical, statistical and practical aspects of the estimation of business sector wage equations and five domestic demand deflators. It also presents a variety of diagnostic simulations in order to evaluate overall model properties ...

This paper brings together a number of interrelated issues concerning the implications of financial liberalisation for macroeconomic outcomes. Deregulation has tended to reduce the importance of liquidity constraints within and between countries, while at the same time giving markets a much greater role in utilising available information to achieve efficient outcomes. This has had implications for private spending behaviour and the transmission channels of monetary policy; for the volatility of financial prices; for the price and credit risks which arise; and for the integration of international financial markets and the process of external adjustment ...

This paper examines issues which have arisen from the growth of non-tariff measures (NTM)s as the preferred instrument of government intervention in commodities markets, especially for agricultural commodities. In order to understand the effects of NTMs and to compare them with tariffs, the paper uses the standard concepts of equivalence and non-equivalence with tariffs . It also establishes and develops a comparison between two instruments called quasi-equivalence which is particularly useful in analysing various differences between the effects of tariffs and non-tariff measures.

These differences between tariffs and NTMs have several consequences which no single measure can adequately summarise. Nevertheless, the price effects of NTMs can be captured by using either effective rates of assistance (ERA) or producer subsidy equivalents (PSE)s. When the net percentage form of the PSE is calculated using world prices and allowing for as many input price changes as ...

In the 1960s, the principle of subsidies for agricultural inputs was unquestioned. The advent of Structural Adjustment Plans led however to a re-examination of this principle, as preference moved towards liberalisation of the agricultural sector. Given the very low consumption of fertilizers in sub-Saharan Africa — a consumption level which is currently the lowest for all world regions — its agricultural development calls imperatively for an increase in the use of fertilizers.

Widespread diffusion of the most modern agricultural practices is therefore a sine quo non for agricultural policies in this region. Hitherto, the cessation of subsidies has always resulted in reduced use of fertilizers. This is due to the specific nature of private demand for agricultural inputs, which is particularly sensitive to the risk factor associated with the use of fertilizers. Users must accordingly be protected against the economic hazards consequent upon the introduction of modern ...

• Environmental policy should be inspired by the recognition that the environment is everyone’s business; all social actors must be involved in environmental management • Policies that implicitly subsidize a wasteful and environmentally destructive use of resources are pervasive: reforms should command a high priority on economic as well as environmental grounds • Compared to regulation, market-based instruments are little used but they can be more efficient; they can also produce revenues to finance environmental improvements • Regulatory effectiveness can be improved by: relying more on preventive measures, including environmental impact assessment; targeting large polluters; strengthening enforcement; and favouring mediation over litigation

Should Mexican agriculture be liberalized? If so, how fast should this be done, and what policies should accompany the transition? We use Mexican agriculture as a case study to analyze the transition problems that arise in most major economic reforms. We focus on the implications for policy design of the absence of efficient capital markets; on the welfare costs of reforming only gradually; on incentive problems created by trade adjustment policies; and on the redistributive aspects of policy reform in the presence of realistic limits on available policy instruments. Our key point is that adjustment should focus on increasing the value of the assets owned by the groups affected, and not on direct income transfers or programs targeted on output or other characteristics controlled by the beneficiaries. We target adjustment on what people have, as opposed to what people do ...

This paper investigates the link between trade flows and relative wages on a cross-section of 22 sectors in 12 OECD countries. Industries are classified according to stylised facts about market structure (fragmentation, segmentation and degree of product differentiation). Next, the import penetration trends during the period 1970-90 are analysed, with special attention paid to the imports from Asian NICs. Finally, panel data estimates of a relative wage equation, encompassing both the characterisation of industries by type of market structure, as well as import penetration and export-intensity variables, are carried out. The results show that the impact of import penetration on relative wages tends to be negative in industries with low product differentiation, whereas the reverse result occurs in industries with high product differentiation and market segmentation ...

During the past two decades, issues such as insufficient resources among particular populations, relative and absolute low incomes and poverty have occupied a prominent place in social policy research in many OECD countries. However, many different concepts have been used in the literature to define and measure ’low income’ or ’poverty’ across and within Member countries. This paper analyses alternative approaches to quantifying these concepts for the explicit purpose of international comparisons. It uses micro data sets on income from the Luxembourg Income Study for 13 OECD countries, for the mid- to the end of the 1980s, to illustrate the issues.

In Chapter II, the three main approaches used in the literature for defining low income and poverty - the absolute, relative and subjective approach - are discussed in detail. Chapter III discusses ways to adjust disposable income for family size and presents sensitivity tests using different equivalence scales. Chapter IV presents more ...

This paper describes a number of alternative medium-term scenarios for the OECD economies and related policy stimulations using the OECD world model INTERLINK. The starting point of the analysis is a reference scenario to 2000 featuring a general recovery of the OECD economies to steady state non-inflationary growth. The paper goes on to examine the implications of slower growth for the paths of fiscal balance and public debt, and the changes in policy mix which might be necessary to restore announced fiscal policy objectives whilst limiting damage to the wider range of policy objectives. A further section goes on to examine the simulated effects of changes of fiscal and monetary policy stance on output, employment, inflation and public debt over the medium term ...

Mobile communication services, especially analogue cellular radio, have been one of the success stories of the last decade in the telecommunication industry.