THE MODEL MANEGE Structure & Equations

Transcription

1 DIRECTION DE LA PRÉVISION THE MODEL MANEGE Structure & Equatons Ncolas CARNOT Workng Paper June 2001

2 THE MODEL MANEGE Structure & Equatons Ncolas CARNOT Workng Paper June 2001 Ths workng paper does not reflet the poston of Drecton de la Prévson but only the author's vew. The dffuson ams at encouragng dscusson and comment. MINISTERE DE L'ECONOMIE, DES FINANCES ET DE L INDUSTRIE DIRECTION DE LA PREVISION 139, rue de Bercy - Bâtment VAUBAN PARIS CEDEX 12

3 THE MODEL MANEGE STRUCTURE AND EQUATIONS 1. Data sources and varables constructon 2. Lstng of model equatons 3. Theoretcal framework for the busness sector 4. Analytcal smulatons

4 VARIABLE NOTATIONS AND CONSTRUCTION The prmary source s the quarterly natonal accounts publshed by the Insttut Natonal de la Statstque et des Etudes Economques (INSEE) n SEC 95 bass. Foregn demand and prces as well as nterest rates are from OECD Man Economc Indcators. Annual seres (e.g. self-employment) are transformed nto quarterly data by ad hoc nterpolaton algorthms. The model s run wth the software TROLL. Lst of varables, ther orgns or modes of constructon BUD Budget defct rato, endogenous, percent of GDP, quarterly natonal accounts C Household consumpton, endogenous, mllons of 1995 francs, quarterly natonal accounts Ck User-cost of captal, endogenous, prce ndex, constructed Ck = P * (R10 100*(P/P(-4) - 1) + 4*delta) Ck* Average user-cost of captal, endogenous, prce ndex, constructed Unweghted average of Ck over the past eghth quarters CU Capacty Utlzaton (manufacturng sector), endogenous, percent, INSEE delta Average rate of physcal deprecaton, exogenous, percentage ponts, constructed delta = 100 * [ 1 - (K-I)/K(-1) ] E Labor effcency, endogenous, ndex, constructed Log(E) = (Log(Y) 0.7*Log(L) 0.3*Log(K))/0.7 E* Trend labor effcency, exogenous, ndex, constructed 32 quarters centered movng average of E ESC Employees socal contrbutons, endogenous, mllons of francs, quarterly natonal accounts G Government nvestment spendng, exogenous, mllons of 1995 francs, quarterly natonal accounts HDI Household Dsposable Income, endogenous, mllons of francs, quarterly natonal accounts HP Household profts, endogenous, mllons of francs, quarterly natonal accounts I Busness sector nvestment, endogenous, mllons of 1995 francs, quarterly natonal accounts ITR Income tax revenues, endogenous, mllons of francs, quarterly natonal accounts K Busness sector captal stock, endogenous, mllons of 1995 francs, constructed Orgnal seres from annual natonal accounts transformed nto quarterly data k1 Share of household profts n total profts, exogenous, constructed k1 = HP / (YV-WB) k2 Share of other personal ncomes n value-added, exogenous, constructed k2 = OPI / Y k3 Relatve prce of nvestment, exogenous, ndex, constructed k3 = P / P k4 A constant to descrbe the adjustment speed of self-employment, exogenous, constructed

5 k5 L LS LT M OPI P Pc P Pm Pm* Pol POP PRO Px Px* R3m R3mr R10 R10r RI RPM k4 = [ LS (1-0.02)*LS(-1) ] / (0.02*LT) Potental productvty of captal, exogenous, constructed k5 = CU * (K/Y) Salared employment, endogenous, thousands of workers, quarterly natonal accounts Self-employment, endogenous, thousands of workers, constructed Orgnal seres from annual natonal accounts transformed nto quarterly data Total employment, endogenous, thousands of workers, constructed LT = L + LS Imports of goods and servces, endogenous, mllons of 1995 francs, quarterly natonal accounts Other personal ncomes, endogenous, mllons of 1995 francs, constructed OPI = [ HDI (WBN ESC) HP + ITR ] / Pc Value-added deflator, endogenous, prce ndex, 1995 = 100, quarterly natonal accounts Household consumpton deflator, endogenous, prce ndex, 1995 = 100, quarterly natonal accounts Busness nvestment deflator, endogenous, prce ndex, 1995 = 100, quarterly natonal accounts Import of goods and servces deflator, endogenous, prce ndex, 1995 = 100, quarterly natonal accounts Foregn prces for mports, exogenous, prce ndex, constructed from OECD Man Economc Indcators Index based on exports deflators from France s 8 man tradng partners Prce of ol n domestc currency, exogenous, francs, OECD Man Economc Indcators Labor force, exogenous, thousands of workers, constructed POP = LT / (1-U/100) Proft rate, endogenous, percentage ponts, constructed PRO = * (YV-WB)/(P*K(-1)) Export of goods and servces deflator, endogenous, prce ndex, 1995 = 100, quarterly natonal accounts Foregn prces competng wth exports, exogenous, prce ndex, constructed from OECD Man Economc Indcators Index based on exports deflators from France s 8 man tradng partners Three-month nomnal nterest rate, exogenous, percentage ponts, OECD Man Economc Indcators Three month real nterest rate, endogenous, percentage ponts, constructed R3mr = R3m - 100*(P/P(-4) - 1) Ten-year nterest rate, exogenous, percentage ponts, OECD Man Economc Indcators Ten year real nterest rate, endogenous, percentage ponts, constructed R10r = R10a - 100*(P/P(-4) - 1) Resdental nvestment, endogenous, mllons of 1995 francs, quarterly natonal accounts Relatve prce of mports, endogenous, ndex, constructed RPM= D85q286q4 * (Pm/Pm*)

6 RPX SB U ULC TB te TFE t ts ttva TVA W WB WBN WD WN X Y YV Relatve prce of exports, endogenous, ndex, constructed RPX = Px*/Px Stockbuldng, mllons of 1995 francs, endogenous, quarterly natonal accounts Unemployment rate, endogenous, percentage ponts, INSEE Unt labor cost, endogenous, constructed ULC = WB / Y Trade Balance, endogenous, percent of GDP, quarterly natonal accounts Employers tax rate, exogenous, percent, constructed te = WB/WBN - 1 Total fnal expendture, endogenous, mllons of 1995 francs, constructed TFE = C + G + I + RI + SB + X Income tax rate, exogenous, percent, constructed t = ITR/(HDI+ITR) Employees tax rate, exogenous, percent, constructed ts = ESC/WBN Indrect tax rate, exogenous, percent, constructed ttva = TVA/(C-TVA) Value-added tax recepts, endogenous, mllons of 1995 francs, constructed Orgnal seres from annual natonal accounts transformed nto quarterly data Labor cost (ncludng employers contrbutons), endogenous, thousands of francs per worker, constructed W = WB / L Wage bll ncludng employers contrbutons, endogenous, mllons of francs, quarterly natonal accounts Wage bll excludng employers contrbutons, endogenous, mllons of francs, quarterly natonal accounts World demand, exogenous, volume ndex, constructed from OECD Man Economc Indcators Index based on exports growth n France s 8 man exports markets. Wage rate (excludng employers contrbutons), endogenous, thousands of francs per worker, constructed WN = WBN / L Exports of goods and servces, endogenous, mllons of 1995 francs, quarterly natonal accounts Real value-added, endogenous, mllons of 1995 francs, quarterly natonal accounts Nomnal value-added, endogenous, mllons of francs, quarterly natonal accounts Dummes (equals 1 at the dates mentoned, 0 otherwse) D74q4 mal strke

7 D81q4 D82q3 D85q286q4 D86q290q4 D86q490q2 D96q497q1 Sup86q2 dscretonary ncrease n the mnmum wage end of wage ndexaton on consumer prces Ol counter-shock fnancal lberalzaton real-estate bubble State subventon for new cars purchases ( prme Juppé ) A varable wth value 0 before 1986q2, 1 thereafter (fnancal lberalzaton) Tme 70Tme trend, zero n 1970q1, ncreased 1 each quarter k1, k2, k3, k4, k5 are all fxed at last hstorc value n model smulatons

8 LIST OF EQUATIONS There are 39 equatons n the model, among whch 27 accountng denttes or techncal relatonshps and 12 econometrc equatons shown below. The econometrc equatons are usually n error correcton form and estmated by one stage ordnary least squares. The sample runs from the late 1970s to the late 1990s, except for the consumpton equaton for whch t starts n the early 1970s. T-Student are shown n parenthess. 1. GDP components (1) GDP accountng dentty Y = C + G + I + RI + SB + X M +Yother (2) Household consumpton LogC= LogC Log(HDI/Pc)+0.23 Log(HDI -2/Pc -2) (5.37) (-4.85) (1.85) (2.90) Log(Pc/Pc -1)-0.43 Log(Pc -1/Pc -2) -0.03D D D86q290q4 (-1.48) (-3.36) (-4.68) (-3.16) (5.55) -0.18Log(C -1/(HDI -1/Pc -1))-0.26Log(Pc -1/Pc -2) R3mr -1 (-5.31) (-3.08) (-3.89) Long-run relaton : LogC = Log(HDI/Pc) Log(Pc/Pc -1) R3mr Ordnary least squares Estmaton perod = 1972q1-1999q4 R 2 = 0.52 Standard Error of Regresson = 0.59% Durbn Watson = 2.21 (3) Resdental nvestment LogRI= LogRI Log(HDI -1/Pc -1)+0.017D86q489q2 (4.21) (2.59) (1.45) (3.61) Log(RI -1/(HDI -1/Pc -1)) R3mr 1 (-4.07) (-3.23) Long-run relaton : LogRI = Log(HDI/Pc) R3mr Ordnary least squares Estmaton perod = 1980q2-1999q4 R 2 =0.43 SER=1.39%

9 Durbn Watson =2.26. (4) Busness nvestment I = K (1-delta/100)*K(-1) (5) Busness captal stock LogK= LogK LogY+( ) LogY Log(Ck -1/P -1) (2.82) (95.6) (4.32) (c) (-1.67) LogPRO [Log(K -1/Y -1) 0.38Log(Ck -1/P -1)] (1.95) (-2.75) Long-run relaton : Log(K) = Log(Y) Log(Ck/P) Ordnary least squares Estmaton perod = 1980q1-1999q4 R² = 0.99 Standard Error of Regresson = 0.029% Durbn Watson = 2.02 (6) Inventory nvestment SB= SB Y Y Y SB -1 (4.51) (-2.44) (3.56) (2.10) (2.74) (-5.36) Long-run relaton: SB = 0 Ordnary least squares Estmaton perod = 1979q1-1999q4 R² = 0.44 Standard Error of Regresson = 5713 Durbn Watson = 2.10 (7) Total fnal expendture TFE = C + G + I + RI + SB + X (8) Imports of goods and servces LogM= LogM Log(TFE)+0.61 Log(TFE -1)-0.19 LogRPM+0.026D82q3 (-3.70) (-2.45) (15.38) (2.61) (-2.88) (2.64) -0.16Log(M -1/TFE -1)-0.11Log(RPM -2)+0.12Log(CU -3)-0.23*(1/(1+0.05*Tme70)) (-3.71) (-4.10) (1.94) (-3.05)

10 Long-run relaton : LogM = Log(TFE) Log(RPM) Log(CU) *(1/(1+0.05*Tme70)) Ordnary least squares Estmaton perod = 1979q1-1999q4. R 2 = 0.81 Standard Error of Regresson = 0.85% Durbn Watson = 1.80 (9) Exports of goods and servces LogX= LogWD+0.18 Log(WD -1)+0.39 LogRPX (3.61) (4.42) (1.76) (3.42) -0.30Log(X -1/WD -1)+0.24Log(RPX -1) Tme70 (-3.86) (3.38) (-3.52) Long-run relaton : LogX = Log(WD) Log(RPX) Tme70 Ordnary least squares Estmaton perod = 1979q1-1999q4 R 2 = 0.43 Standard Error of Regresson = 1.56% Durbn Watson = Prces, wage and employment (10) Value-added deflator LogP= LogULC+0.27 LogULC LogULC -2+( ) LogULC -5 (5.00) (8.14) (5.50) (2.50) (c) (CU-CU -1)+0.47 LogY-0.021D82q [LogP Log(W -1/E* -1)-0.3Log(Ck* -1)] (2.34) (6.01) (-6.47) (-5.07) Long-run relaton: LogP = 0.7Log(W/E*) + 0.3LogCk* Ordnary least squares Estmaton perod = 1980q1-1999q4 R² = 0.84 Standard Error of Regresson = 0.30% Durbn Watson = 1.83 (11) Busness nvestment deflator

11 P = k3 * P (12) User cost of captal Ck = P * (R10 100*(P/P(-4) - 1) + 4*delta) (13) Average user cost of captal Ck* = (Ck + Ck(-1) + Ck(-2) + Ck(-3) + Ck(-4) + Ck(-5) + Ck(-6) + Ck(-7))/8 (14) Consumer prce deflator LogPc= LogPc LogP+0.12 LogPm (-1.47) (2.26) (10.1) (7.37) [LogPc -1-Log(1+ttva -1)-0.8LogP LogPm -1] (-2.24) Long-run relaton: LogPc = Log(1+ttva) + 0.8LogP + 0.2LogPm Ordnary least squares Estmaton perod = 1979q1-1999q4 R² = 0.95 Standard Error of Regresson = 0.24% Durbn Watson = 2.28 (15) Imports of goods and servces deflator LogPm= LogPm LogPm* LogPol+0.2 (LogPc/(1+ttva)) (-2.36) (5.12) (5.74) (5.10) (c) -0.11[LogPm LogPm* LogPol Log(Pc -1/(1+ttva -1))] Tme70 (-2.70) (-2.67) Long-run relaton: LogPm = 0.45LogPm* LogPol + 0.5Log(Pc/(1+ttva)) Ordnary least squares Estmaton perod = 1979q1-1999q4 R² = 0.72 Standard Error of Regresson = 1.12% Durbn Watson = 2.15 (16) Exports of goods and servces deflator LogPx= LogPx*+0.11 LogPx* LogP (-2.84) (6.37) (2.49) (1.48) -0.13LogPx LogPx* -1+( )LogP -1]+0.16/(1+Tme70/100)

12 (-2.86) (2.05) (c) (4.06) Long-run relaton: LogPx=0.51LogPx*+0.49LogP Ordnary least squares Estmaton perod = 1979q1-1999q4 R² = 0.77 Standard Error of Regresson = 0.69% Durbn Watson = 1.80 (17) Relatve prce of mports RPM = D85q286q4 * (Pm/Pm*) (18) Relatve prce of exports RPX = Px*/Px (19) Wage rate Log(WN/E*)= LogPc+0.34 Pc -1+( ) LogPc U (-3.74) (3.55) (2.93) (c) (-3.70) D81q D82q [Log(WN -1/E* -1Pc -1)+Log((1-ts -1)(1-t -1))] U -2 (2.94) (-3.01) (-3.74) (-3.73) Long-run relaton : Log(WN/E*) = LogPc+Log((1-ts)(1-t))-0.042U Ordnary least squares Estmaton perod = 1979q1-1999q4 R² = 0.69 Standard Error of Regresson = 0.34% Durbn Watson = 2.04 (20) Labor cost W = (1+tcse) * WN (21) Unt labor cost ULC = WB/Y (22) Salared employment LogL= LogL LogL LogL -3 (-3.60) (9.03) (-4.46) (2.47) LogY Y LogY LogY Log(W/E*P)

13 (3.75) (2.13) (2.02) (2.33) (-1.98) Log(E -1L -1/Y -1) 0.016Log(W -3E* -3/P -1) (-1.99) (-2.38) Long-run relaton : Log(L)=Log(Y/E) Log(W/EP) Ordnary least squares Estmaton perod = 1979q1-1999q4 R² = 0.87 Standard Error of Regresson = 0.092% Durbn Watson = 1.80 (23) Self employment LS = * (LS(-1) - k4*lt(-1)) (24) Total employment LT = L+LS (25) Unemployment rate U = 100*(1-LT/POP) 3. Incomes, publc fnance and mscellaneous (26) Nomnal value-added YV = P*Y (27) Wage bll, ncludng employers contrbutons WB = (1+te) * WBN (28) Wage bll, net of employers contrbutons WBN = WN * L (29) Employees socal contrbutons ESC = ts * WBN (30) Household dsposable ncome HDI = (WBN - ESC) + HP + OPI*Pc ITR

14 (31) Busness proft rate PRO = * (YV-WB)/(P*K(-1)) (32) Household profts HP = k1 * (YV WB) (33) Other personal ncomes OPI = k2 * Y (34) Income tax recepts ITR = (t/(1-t)) * HDI (35) Budget defct rato BUD = (P*G te * WBn ESC ITR (ttva/(1-ttva))*pc*c + BUDother) / YV (36) Trade balance rato TB = (Px*X Pm*M) / YV (37) Capacty utlzaton CU = k5 * (Y/K) (38) Three month real nterest rate R3mr = R3mr+-100*(P/P(-4) - 1) (39) Ten year real nterest rate R10r = R10-100*(P/P(-4) - 1)

15 THEORETICAL FRAMEWORK OF PRODUCER BEHAVIOUR We consder an economy wth n goods ( = 1,..., n ). Each good s produced by a monopolstc producer usng a constant return to scale CES technology: Y = F ( K, L ) = [ ak wth 1 1 / σ + (1 a)( EL ) Y : the quantty of good produced K : the captal stock L : employment 1 1 / σ ] σ /( σ 1) E : Harrod neutral techncal progress ndependent of a : a parameter and σ the elastcty of substtuton between captal and labor. Producers are assumed to be prce taker n factor markets, so they take as gven the cost of labor W and the cost of captal Ck. Each producer faces a downward slopng demand curve wth constant relatve prce-elastcty : d Y Y = Y ( P ) = ( P / P) n η wth Y aggregate demand, P the prce of good and P the aggregate prce ndex. Such demand curves are tradtonally derved by maxmzng the utlty of a representatve consumer wth a budget R = PY and 1 preferences of the form = 1 / η U. The elastcty of substtuton η can be renterpretated as an C ndcator of product market competton. The aggregate prce s gven by P n 1 η 1 1 η = P = 1 n. The program of producer s to maxmze ts proft by selectng the optmal prce, the quantty sold and the quanttes of factors, whle takng nto account the techncal possbltes and the demand curve: Max PY WL CkK P, Y, K, L d under both constrants Y = F K, L ) and Y = Y P ) ( ( Solvng ths program leads to a symmetrc equlbrum n whch the optmal prce s a constant mark up over unt cost : σ 1 σ σ P = P = µ [ a Ck + (1 a) ( W / E Y = Y / n ) 1 σ ] 1 /(1 σ ), wth µ = (1 1/ η) 1 µ σ Ck K = Y ( ) so that ap µ Ck σ µ Ck σ K = K = Y ( ) = Y ( ) ap ap = µ W σ L ( Y / E)( (1 a) EP ) so that W W L = L = ( Y / E)( ) = ( Y / E)( ) (1 a) EP (1 a) EP µ σ µ σ

16 These expressons are used to te down the long run of the value-added prce and factor demands equatons. For the sake of smplcty, they are frst wrtten n log-lnear form, whch, after droppng constant terms, yelds : p = α( w e) + (1 α) ck k = y σ ( ck p) l = ( y e) σ ( w e p) WL where lower case letters denote logarthms and α = µ. PY The frst equaton can be seen as an aggregate long-term prce settng relaton, and the two others as aggregate factor demands equatons. The prce settng relaton can be rearranged n a way that s commonly referred to as a factor prce fronter : 1 α w e p = ( ck p) α whch dsplays a lnk between the real cost of labor and the real user cost of captal.

17 ANALYTICAL SIMULATIONS Tables A1 to A11 present standard smulaton results to document the propertes of the model. The smulatons are carred out under the assumpton of unchanged nomnal effectve exchange rate and real short and long term nterest rates. The results are reported as devatons from baselne n percent, except when specfed otherwse. The column long-run reports the results obtaned when the smulaton s stablzed, whch n practce occurs n about ten to twenty years but s checked for by carryng out smulatons over a two hundred years smulaton path. A1 A2 A3 A4 A5 A6 A7 A8 A9 A10 A11 A one percent of GDP ncrease n publc nvestment A two percent ncrease n foregn demand A ten percent ncrease n foregn prces A one percent ex ante ncrease n nomnal wages A one percentage pont reducton n the average rate of employers socal contrbutons A one percentage pont reducton n the average rate of the value-added tax A one percent decrease n the target mark up of prces over costs A hundred percentage ponts ncrease n nomnal nterest rates A twenty percent ncrease n ol prces n domestc currency A one percent ncrease n trend labor effcency A one percent ncrease n the labor force

18 A1- A one percent of GDP ncrease n publc nvestment Devatons from baselne n percent. Year Longrun GDP Prvate consumpton Busness nvestment Exports Imports Consumer prce Value-added prce Publc defct (percent of GDP) Trade balance (percent of GDP) Unemployment rate (percentage ponts) Shock: a permanent shock to exogenous varable G equvalent to one percent of GDP. Assumptons: unchanged real nterest rates and nomnal exchange rate.

19 A2- A two percent ncrease n foregn demand Devatons from baselne n percent. Year Longrun GDP Prvate consumpton Busness nvestment Exports Imports Consumer prce Value-added prce Publc defct (percent of GDP) Trade balance (percent of GDP) Unemployment rate (percentage ponts) Shock: a permanent 2% shock to exogenous varable WD. Assumptons: unchanged real nterest rates and nomnal exchange rate.

20 A3- A ten percent ncrease n foregn prces Devatons from baselne n percent. Year Longrun GDP Prvate consumpton Busness nvestment Exports Imports Consumer prce Value-added prce Publc defct (percent of GDP) Trade balance (percent of GDP) Unemployment rate (percentage ponts) Shock: a permanent 10% shock to exogenous varables Pm*, Px* and Pol. Assumptons: unchanged real nterest rates and nomnal exchange rate.

21 A4- A one percent ex ante ncrease n nomnal wages Devatons from baselne n percent. Year Longrun GDP Prvate consumpton Busness nvestment Exports Imports Consumer prce Value-added prce Publc defct (percent of GDP) Trade balance (percent of GDP) Unemployment rate (percentage ponts) Shock: a permanent shock to the resdual of the wage equaton equvalent to 1 percent of varable W Assumptons: unchanged real nterest rates and nomnal exchange rate.

22 A5- A one percentage pont reducton n the average rate of employers socal contrbutons Devatons from baselne n percent. Year Longrun GDP Prvate consumpton Busness nvestment Exports Imports Consumer prce Value-added prce Publc defct (percent of GDP) Trade balance (percent of GDP) Unemployment rate (percentage ponts) Shock: a permanent -1 percent shock to exogenous varable te. Assumptons: unchanged real nterest rates and nomnal exchange rate.

23 A6- A one percentage pont reducton n the average rate of the value-added tax Devatons from baselne n percent. Year Longrun Real value-added Prvate consumpton Busness nvestment Exports Imports Consumer prce Value-added prce Publc defct (percent of GDP) Trade balance (percent of GDP) Unemployment rate (percentage ponts) Shock: a permanent -1 percent shock to exogenous varable ttva. Assumptons: unchanged real nterest rates and nomnal exchange rate.

24 A7- A one percent decrease n the target mark up of prces over costs Devatons from baselne n percent. Year Longrun GDP Prvate consumpton Busness nvestment Exports Imports Consumer prce Value-added prce Publc defct (percent of GDP) Trade balance (percent of GDP) Unemployment rate (percentage ponts) Shocks: a permanent -1 percent shock to the value-added prce equaton resdual a permanent σ = percent shock to the captal stock equaton resdual a permanent σ = percent shock to the employment equaton resdual Assumptons: unchanged real nterest rates and nomnal exchange rate.

25 A8- A hundred percentage ponts ncrease n nomnal nterest rates Devatons from baselne n percent. Year Longrun GDP Prvate consumpton Busness nvestment Exports Imports Consumer prce Value-added prce Publc defct (percent of GDP) Trade balance (percent of GDP) Unemployment rate (percentage ponts) Shock: a permanent 100 percentage ponts shock to exogenous varables R3m and R10 Assumptons: unchanged nomnal exchange rate.

26 A9- A twenty percent ncrease n ol prces n domestc currency Devatons from baselne n percent. Year Longrun GDP Prvate consumpton Busness nvestment Exports Imports Consumer prce Value-added prce Publc defct (percent of GDP) Trade balance (percent of GDP) Unemployment rate (percentage ponts) Shock: a permanent 20% shock to exogenous varable Pol Assumptons: unchanged real nterest rates and nomnal exchange rate.

27 A10- A one percent ncrease n trend labor effcency Devatons from baselne n percent. Year Longrun GDP Prvate consumpton Busness nvestment Exports Imports Consumer prce Value-added prce Publc defct (percent of GDP) Trade balance (percent of GDP) Unemployment rate (percentage ponts) Shock: a permanent 1% shock to exogenous varable E* Assumptons: unchanged real nterest rates and nomnal exchange rate.

28 A11- A one percent ncrease n the labor force Devatons from baselne n percent. Year Longrun GDP Prvate consumpton Busness nvestment Exports Imports Consumer prce Value-added prce Publc defct (percent of GDP) Trade balance (percent of GDP) Unemployment rate (percentage ponts) Shock: a permanent 1% shock to exogenous varable POP Assumptons: unchanged real nterest rates and nomnal exchange rate.