EMF 7 model comparisons: key relationships and parameters
Technical Report
·
OSTI ID:6884839
A simplified textbook model of aggregate demand and supply interprets the similarities and differences in the price and income responses of the various EMF 7 models to oil and policy shocks. The simplified model is a marriage of Hicks' classic IS-LM formulation of the Keynesian theory of effective demand with a rudimentary model of aggregate supply, combining a structural Phillips curve for wage determination and a markup theory of price determination. The reduced-form income equation from the fix-price IS-LM model is used to define an aggregate demand (AD) locus in P-Y space, showing alternative pairs of the implicit GNP deflator and real GNP which would simultaneously satisfy the saving-investment identity and the condition for money market equilibrium. An aggregate supply (AS) schedule is derived by a similar reduction of relations between output and labor demand, unemployment and wage inflation, and the wage-price-productivity nexus governing markup pricing. Given a particular econometric model it is possible to derive IS and LM curves algebraically. The resulting locuses would show alternative combinations of interest rate and real income which equilibrate real income identity on the IS side and the demand and supply of money on the LM side. By further substitution the reduced form fix-price income relation could be obtained for direct quantification of the AD locus. The AS schedule is obtainable by algebraic reduction of the structural supply side equations.
- Research Organization:
- Stanford Univ., CA (USA). Energy Modeling Forum
- DOE Contract Number:
- FG01-80EI10667
- OSTI ID:
- 6884839
- Report Number(s):
- DOE/EI/10667-T1; ON: DE84010590
- Country of Publication:
- United States
- Language:
- English
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