' MODEL OPENFIX_S for Eviews version 10 'CJE WEB version ' Amended on: 12 February 2020 ' **************************************************************************** ' Create a workfile, naming it openfix, to hold annual data from 1950 to 2050 wfcreate(wf = openfix_s, page = annual) a 1950 2100 smpl @all '***************************************************************************** 'Create and set import and export price elasticities series mu1 mu1.label(d) Parameter determining real imports in Country A mu1 = 0.5 '0.7 series eps1 eps1.label(d) Parameter determining real exports in Country A eps1 = 1 - mu1 'no improvement according to MLC (original value = 0.7) '***************************************************************************** ' Creates and documents series series b_AA_d b_AA_d.label(d) Bills issued by Country A acquired by Country A: demand series b_AA_s b_AA_s.label(d) Bills issued by Country A acquired by Country A: supply series b_cb_Aus_d b_cb_Aus_d.label(d) Bills issued by Country B, demanded by Country A Central bank series b_cb_Aus_s b_cb_Aus_s.label(d) Bills issued by Country B, supplied to Country A Central bank series b_cb_AA_d b_cb_AA_d.label(d) Bills issued by Country A, demanded by Country A Central bank series b_cb_AA_s b_cb_AA_s.label(d) Bills issued by Country A, supplied to Country A Central bank series b_A_s b_A_s.label(d) Bills issued by Country A - total supply series b_Aus_d b_Aus_d.label(d) Bills issued by Country B acquired by Country A: demand series b_Aus_s b_Aus_s.label(d) Bills issued by Country B acquired by Country A: supply series b_BA_d b_BA_d.label(d) Bills issued by Country A acquired by Country B: demand series b_BA_s b_BA_s.label(d) Bills issued by Country A acquired by Country B: supply series b_B_s b_B_s.label(d) Bills issued by Country B - total supply series b_Bus_d b_Bus_d.label(d) Bills issued by Country B acquired by Country B: demand series b_Bus_s b_Bus_s.label(d) Bills issued by Country B acquired by Country B: supply series b_cb_Bus_d b_cb_Bus_d.label(d) Bills issued by Country B demanded by Country B Central Bank series b_cb_Bus_s b_cb_Bus_s.label(d) Bills issued by Country B supplied to Country B Central Bank series c_k_A c_k_A.label(d) Real consumption in Country A series c_k_B c_k_B.label(d) Real consumption in Country B series cab_A cab_A.label(d) Current account balance in Country A series cab_B cab_B.label(d) Current account balance in Country B series cons_A cons_A.label(d) Consumption in Country A series cons_B cons_B.label(d) Consumption in Country B series ds_A ds_A.label(d) Domestic sales in Country A series ds_B ds_B.label(d) Domestic sales in Country B series ds_k_A ds_k_A.label(d) Real domestic sales in Country A series ds_k_B ds_k_B.label(d) Real domestic sales in Country B series dxre_A dxre_A.label(d) Expected change in the exchange rate of Country A (measured as units of Country A currency against 1 unit of Country B currency) series dxre_B dxre_B.label(d) Expected change in the exchange rate Country B (measured as units of Country B currency against 1 unit of Country A currency) series f_cb_A f_cb_A.label(d) Profits of Central Bank in Country A series f_cb_B f_cb_B.label(d) Profits of Central Bank in Country B series g_A g_A.label(d) Government expenditure in Country A series g_B g_B.label(d) Government expenditure in Country B series g_k_A g_k_A.label(d) Real government expenditure in Country A series g_k_B g_k_B.label(d) Real government expenditure in Country B series h_A_d h_A_d.label(d) Demand for cash of Country A series h_A_s h_A_s.label(d) Supply of Country A cash series h_B_d h_B_d.label(d) Demand for cash of Country B series h_B_s h_B_s.label(d) Supply of Country B cash series im_A im_A.label(d) Imports of Country A from Country B series im_B im_B.label(d) Imports of Country B from Country A series im_k_A im_k_A.label(d) Real imports of Country A from Country B series im_k_B im_k_B.label(d) Real imports of Country B from Country A series kab_A kab_A.label(d) Capital account balance in Country A series kab_B kab_B.label(d) Current account balance in Country B series kabp_A kabp_A.label(d) Capital account balance in Country A, excluding official transactions series kabp_B kabp_B.label(d) Current account balance in Country B, excluding official transactions series n_A n_A.label(d) Employment in Country A series n_B n_B.label(d) Employment in Country B series or_A or_A.label(d) Gold reserves in Country A series or_B or_B.label(d) Gold reserves in Country B series pds_A pds_A.label(d) Price of domestic sales in Country A series pds_B pds_B.label(d) Price of domestic sales in Country B series pg_A pg_A.label(d) Price of gold in Country A series pg_B pg_B.label(d) Price of gold in Country B series pm_B pm_B.label(d) Price of imports in Country B series pm_A pm_A.label(d) Price of imports in Country A series pr_A pr_A.label(d) Productivity in Country A series pr_B pr_B.label(d) Productivity in Country B series ps_A ps_A.label(d) Price of sales in Country A series ps_B ps_B.label(d) Price of sales in Country B series psbr_A psbr_A.label(d) Government deficit in Country A series psbr_B psbr_B.label(d) Government deficit in Country B series py_B py_B.label(d) Price of output in Country B series py_A py_A.label(d) Price of imports in Country A series px_B px_B.label(d) Price of exports in Country B series px_A px_A.label(d) Price of exports in Country A series r_A r_A.label(d) Interest rate on Country A bills series r_B r_B.label(d) Interest rate on Country B bills series s_A s_A.label(d) Value of sales in Country A series s_B s_B.label(d) Value of sales in Country B series s_k_A s_k_A.label(d) Real sales in Country A series s_k_B s_k_B.label(d) Real sales in Country B series t_A t_A.label(d) Tax revenue in Country A series t_B t_B.label(d) Tax revenue in Country B series v_A v_A.label(d) Net financial assets of Country A series v_B v_B.label(d) Net financial assets of Country B series v_k_A v_k_A.label(d) Real net financial assets of Country A series v_k_B v_k_B.label(d) Real net financial assets of Country B series w_A w_A.label(d) Nominal wage rate in Country A series w_B w_B.label(d) Nominal wage rate in Country B series x_A x_A.label(d) Exports from Country A to Country B series x_B x_B.label(d) Exports from Country B to Country A series x_k_A x_k_A.label(d) Real exports from Country A to Country B series x_k_B x_k_B.label(d) Real exports from Country B to Country A series xr_A xr_A.label(d) Exchange rate: units of S currency against 1 unit of N currency series xr_B xr_B.label(d) Exchange rate: units of N currency against 1 unit of S currency series xre_A xre_A.label(d) Expected exchange rate: units of S currency against 1 unit of N currency series xre_B xre_B.label(d) Expected exchange rate: units of N currency against 1 unit of S currency series yd_A yd_A.label(d) Disposable income in Country A series yd_B yd_B.label(d) Disposable income in Country B series ydhs_A ydhs_A.label(d) Haig-Simons disposable income in Country A series ydhs_B ydhs_B.label(d) Haig-Simons disposable income in Country B series ydhs_k_A ydhs_k_A.label(d) Real Haig-Simons disposable income in Country A series ydhs_k_B ydhs_k_B.label(d) Real Haig-Simons disposable income in Country B series ydhse_k_A ydhse_k_A.label(d) Expected real Haig-Simons disposable income in Country A series ydhse_k_B ydhse_k_B.label(d) Expected real Haig-Simons disposable income in Country B series y_A y_A.label(d) Income in Country A series y_B y_B.label(d) Income in Country B series y_k_A y_k_A.label(d) Real income in Country A series y_k_B y_k_B.label(d) Real income in Country B ' Generate parameters series alpha1_B alpha1_B.label(d) Propensity to consume out of income Country B series alpha2_B alpha2_B.label(d) Propensity to consume out of wealth Country B series alpha1_A alpha1_A.label(d) Propensity to consume out of income Country A series alpha2_A alpha2_A.label(d) Propensity to consume out of wealth Country A series eps0 eps0.label(d) Parameter determining real exports in Country A series eps2 eps2.label(d) Parameter determining real exports in Country A series lambda10 lambda10.label(d) Parameter in asset demand function series lambda11 lambda11.label(d) Parameter in asset demand function series lambda12 lambda12.label(d) Parameter in asset demand function series lambda20 lambda20.label(d) Parameter in asset demand function series lambda21 lambda21.label(d) Parameter in asset demand function series lambda22 lambda22.label(d) Parameter in asset demand function series lambda40 lambda40.label(d) Parameter in asset demand function series lambda41 lambda41.label(d) Parameter in asset demand function series lambda42 lambda42.label(d) Parameter in asset demand function series lambda50 lambda50.label(d) Parameter in asset demand function series lambda51 lambda51.label(d) Parameter in asset demand function series lambda52 lambda52.label(d) Parameter in asset demand function series mu0 mu0.label(d) Parameter determining real imports in Country A series mu2 mu2.label(d) Parameter determining real imports in Country A series nu1m nu1m.label(d) Parameter determining import prices in Country A series nu0m nu0m.label(d) Parameter determining import prices in Country A series nu1m nu1m.label(d) Parameter determining import prices in Country A series nu0x nu0x.label(d) Parameter determining export prices in Country A series nu1x nu1x.label(d) Parameter determining export prices in Country A series theta_A theta_A.label(d) Tax rate in Country A series theta_B theta_B.label(d) Tax rate in Country B series phi_B phi_B.label(d) mark-up in Country B series phi_A phi_A.label(d) mark-up in Country A 'Additional series series tb_B tb_B.label(d) Country B trade balance series tb_A tb_A.label(d) country A trade balance series finc_B finc_B.label(d) Factor income to US series finc_A finc_A.label(d) Factor income to country A series p_madeA p_madeA.label(d) Basic price made in Britain goods series p_madeB p_madeB.label(d) Basic price made in Country B goods ' Starting values for parameters alpha1_A = 0.75 alpha1_B = 0.75 alpha2_A = 0.13333 alpha2_B = 0.13333 eps0 = - 2.1 eps2 = 1 lambda10 = 0.7 lambda11 = 5 lambda12 = 5 lambda20 = 0.25 lambda21 = 5 lambda22 = 5 lambda40 = 0.7 lambda41 = 5 lambda42 = 5 lambda50 = 0.25 lambda51 = 5 lambda52 = 5 mu0 = - 2.1 mu2 = 1 nu0m = - 0.00001 nu0x = - 0.00001 nu1m = 0.7 nu1x = 0.5 phi_A = 0.2381 phi_B = 0.2381 theta_A = 0.2 theta_B = 0.2 ' Exogenous variables b_cb_Aus_s = 0.02031 dxre_B = 0 g_k_A = 16 g_k_B = 16 or_A = 7 pg_B = 1 pr_A = 1.3333 pr_B = 1.3333 r_A = 0.03 r_B = 0.03 w_A = 1 w_B = 1 ' Starting values for stocks b_cb_AA_d = 0.27984 b_cb_AA_s = 0.27984 b_cb_Aus_d = 0.0203 b_cb_Bus_d = 0.29843 b_cb_Bus_s = 0.29843 b_A_s = 138.94 b_AA_d = 102.18 b_AA_s = 102.18 b_Aus_d = 36.493 b_Aus_s = 36.504 b_B_s = 139.02 b_BA_d = 36.497 b_BA_s = 36.487 b_Bus_d = 102.19 b_Bus_s = 102.19 h_A_d = 7.2987 h_A_s = 7.2987 h_B_d = 7.2995 h_B_s = 7.2995 or_B = 7 v_k_A = 152.62 v_k_B = 152.63 v_A = 145.97 v_B = 145.99001 ' Other endogenous c_k_A = 81.393 c_k_B = 81.401 cab_A = 0 cab_B = 0 cons_A = 77.851 cons_B = 77.86 ds_k_A = 97.393 ds_k_B = 97.401 ds_A = 93.154 ds_B = 93.164 dxre_A = 0 f_cb_A = 0.00869 f_cb_B = 0.00895 g_A = 15.304 g_B = 15.304 im_k_A = 11.928 im_k_B = 11.926 im_A = 11.407 im_B = 11.409 kabp_A = 0.00002 kabp_B = - 0.00002 n_A = 73.046 n_B = 73.054 pds_A = 0.95648 pds_B = 0.95649 pg_A = 0.99971 pm_A = 0.95628 pm_B = 0.95661 ps_A = 0.95646 ps_B = 0.9565 px_A = 0.95634 px_B = 0.95656 py_A = 0.95648 py_B = 0.95649 s_k_A = 109.32 s_k_B = 109.33 s_A = 104.56 s_B = 104.57 t_A = 19.463 t_B = 19.465 x_k_A = 11.926 x_k_B = 11.928 x_A = 11.406 x_B = 11.41 xr_A = 1.0003 xr_B = 0.99971 xre_A = 1.0003 xre_B = 0.99971 y_k_A = 97.392 y_k_B = 97.403 y_A = 93.154 y_B = 93.164 yd_A = 77.851 yd_B = 77.86 ydhs_k_A = 81.394 ydhs_k_B = 81.402 ydhse_k_A = 81.394 ydhse_k_B = 81.402 'Additional initial values p_madeA = 0.9626701 p_madeB= 0.9626248 '****************************************************** 'Create model model openfix ' ACCOUNTING IDENTITIES ' Disposable income in country A - eq. 12.1 MODIFIED openfix.append yd_A = (y_A + r_A(-1)*b_AA_d(-1) + xr_B*r_B(-1)*b_Aus_s(-1))*(1 - theta_A) ' Haig-Simons disposable income in country A - eq. 12.2 openfix.append yd_hs_A = yd_A + d(xr_B)*b_Aus_s(-1) ' Wealth accumulation in country A - eq. 12.3 MODIFIED openfix.append v_A = v_A(-1) + yd_hs_A - cons_A ' Disposable income in Country B - eq. 12.4 MODIFIED openfix.append yd_B = (y_B + r_B(-1)*b_Bus_d(-1) + xr_A*r_A(-1)*b_BA_s(-1))*(1 - theta_B) ' Haig-Simons disposable income in Country B - eq. 12.5 openfix.append yd_hs_B = yd_B + d(xr_A)*b_BA_s(-1) ' Wealth accumulation in Country B - eq. 12.6 MODIFIED openfix.append v_B = v_B(-1) + yd_hs_B - cons_B ' Taxes in country A - eq. 12.7 openfix.append t_A = theta_A*(y_A + r_A(-1)*b_AA_d(-1) + xr_B*r_B(-1)*b_Aus_s(-1)) ' Taxes in Country B - eq. 12.8 openfix.append t_B = theta_B*(y_B + r_B(-1)*b_Bus_d(-1) + xr_A*r_A(-1)*b_BA_s(-1)) ' Equations 12.9 & 12.10 are dropped in favour of equations 12.53 & 12.54 ' Profits of Central Bank in country A - eq. 12.11 - typo in the book for r_B openfix.append f_cb_A = r_A(-1)*b_cb_AA_d(-1) + r_B(-1)*b_cb_Aus_s(-1)*xr_B ' Profits of Central Bank in Country B - eq. 12.12 openfix.append f_cb_B = r_B(-1)*b_cb_Bus_d(-1) ' Government budget constraint - country A - eq. 12.13 openfix.append b_A_s = b_A_s(-1) + g_A + r_A(-1)*b_A_s(-1) - t_A - f_cb_A ' Government budget constraint - Country B - eq. 12.14 openfix.append b_B_s = b_B_s(-1) + g_B + r_B(-1)*b_B_s(-1) - t_B - f_cb_B ' Current account balance - country A - eq. 12.15 openfix.append cab_A = x_A - im_A + xr_B*r_B(-1)*b_Aus_s(-1) - r_A(-1)*b_BA_s(-1) + r_B(-1)*b_cb_Aus_s(-1)*xr_B ' Capital account balance in country A - eq. 12.16 openfix.append kab_A = kabp_A - (xr_B*d(b_cb_Aus_s) + pg_A*d(or_A)) ' Current account balance in Country B - eq. 12.17 openfix.append cab_B = x_B - im_B + xr_A*r_A(-1)*b_BA_s(-1) - r_B(-1)*b_Aus_s(-1) - r_B(-1)*b_cb_Aus_s(-1) ' Capital account balance in Country B - eq. 12.18 openfix.append kab_B = kabp_B + d(b_cb_Aus_s) - pg_B*d(or_B) ' Capital account balance in country A, net of official transactions - eq. 12.19 openfix.append kabp_A = - d(b_Aus_s)*xr_B + d(b_BA_s) ' Capital account balance in US, net of official transactions - eq. 12.20 openfix.append kabp_B = - d(b_BA_s)*xr_A + d(b_Aus_s) ' TRADE ' Import prices in country A - eq. 12.21 MODIFIED openfix.append pm_A = exp(nu0m + nu1m*log(py_B) + (1 - nu1m)*log(py_A) - nu1m*log(xr_A)) ' Export prices in country A - eq. 12.22 MODIEFIED openfix.append px_A = exp(nu0x + nu1x*log(py_B) + (1 - nu1x)*log(py_A) - nu1x*log(xr_A)) ' Export prices in Country B - eq. 12.23 openfix.append px_B = pm_A*xr_A ' Import prices in Country B - eq. 12.24 openfix.append pm_B = px_A*xr_A ' Real exports from country A - eq. 12.25 - depends on current relative price MODIFIED openfix.append x_k_A = exp(eps0 - eps1*log(pm_B(-1)/py_B(-1)) + eps2*log(y_k_B)) ' Real imports of country A - eq. 12.26 MODIFIED openfix.append im_k_A = exp(mu0 - mu1*log(pm_A(-1)/py_A(-1)) + mu2*log(y_k_A)) ' Real exports from Country B - eq. 12.27 openfix.append x_k_B = im_k_A ' Real imports of Country B - eq. 12.28 openfix.append im_k_B = x_k_A ' Exports of country A - eq. 12.29 openfix.append x_A = x_k_A*px_A ' Exports of Country B - eq. 12.30 openfix.append x_B = x_k_B*px_B ' Imports of country A - eq. 12.31 openfix.append im_A = im_k_A*pm_A ' Imports of Country B - eq. 12.32 openfix.append im_B = im_k_B*pm_B '************************************************************************************************************************ 'ADDITIONAL EQUATIONS FOR TRADE BALANCES *** 'Trade balance of country A openfix.append tb_A = x_A - im_A 'Trade balance of US openfix.append tb_B = x_B - im_B 'Factor income of country A openfix.append finc_A = xr_B*r_B(-1)*b_Aus_s(-1) - r_A(-1)*b_BA_s(-1) + r_B(-1)*b_cb_Aus_s(-1)*xr_B 'Factor income of US openfix.append finc_B = xr_A*r_A(-1)*b_BA_s(-1) - r_B(-1)*b_Aus_s(-1) - r_B(-1)*b_cb_Aus_s(-1) '************************************************************************************************************************ ' INCOME AND EXPENDITURE ' Real wealth in country A - eq. 12.33 openfix.append v_k_A = v_A/pds_A ' Real wealth in Country B - eq. 12.34 openfix.append v_k_B = v_B/pds_B ' Real Haig-Simons disposable income in country A - eq. 12.35 MODIFIED openfix.append ydhs_k_A = yd_hs_A/pds_A - v_A(-1)*d(pds_A)/pds_A ' Real Haig-Simons disposable income in Country B - eq. 12.36 MODIFIED openfix.append ydhs_k_B = yd_hs_B/pds_B - v_B(-1)*d(pds_B)/pds_B ' Real consumption in country A - eq. 12.37 openfix.append c_k_A = alpha1_A*ydhse_k_A + alpha2_A*v_k_A(-1) ' Real consumption in Country B - eq. 12.38 openfix.append c_k_B = alpha1_B*ydhse_k_B + alpha2_B*v_k_B(-1) ' Expected real Haig-Simons disposable income in country A - eq. 12.39 openfix.append ydhse_k_A = (ydhs_k_A + ydhs_k_A(-1))/2 ' Expected real Haig-Simons disposable income in Country B - eq. 12.40 openfix.append ydhse_k_B = (ydhs_k_B + ydhs_k_B(-1))/2 ' Real sales in country A - eq. 12.41 openfix.append s_k_A = c_k_A + g_k_A + x_k_A ' Real sales in Country B - eq. 12.42 openfix.append s_k_B = c_k_B + g_k_B + x_k_B ' Value of sales in country A - eq. 12.43 openfix.append s_A = s_k_A*ps_A ' Value of sales in Country B - eq. 12.44 openfix.append s_B = s_k_B*ps_B 'Basic Price of made in Britain goods NEW - eq. 12.44,5 openfix.append p_madeA = (1 + phi_A)*(w_A*n_A)/y_k_A 'Basic Price of made in Country B goods NEW - eq. 12.44,6 openfix.append p_madeB = (1 + phi_B)*(w_B*n_B)/y_k_B ' Price of sales in country A - eq. 12.45 MODIFIED openfix.append ps_A = (p_madeA*(s_k_A - im_k_A - x_k_A)/s_k_A)+px_A*(x_k_A/s_k_A)+pm_A*(im_k_A/s_k_A) ' Price of sales in Country B - eq. 12.46 MODIFIED openfix.append ps_B = (p_madeB*(s_k_B-im_k_B-x_k_B)/s_k_B)+px_B*(x_k_B/s_k_B)+pm_B*(im_k_B/s_k_B) ' Price of domestic sales in country A - eq. 12.47 openfix.append pds_A = (s_A - x_A)/(s_k_A - x_k_A) ' Price of domestic sales in Country B - eq. 12.48 openfix.append pds_B = (s_B - x_B)/(s_k_B - x_k_B) ' Domestic sales in country A - eq. 12.49 openfix.append ds_A = s_A - x_A ' Domestic sales in Country B - eq. 12.50 openfix.append ds_B = s_B - x_B ' Real domestic sales in country A - eq. 12.51 openfix.append ds_k_A = c_k_A + g_k_A ' Real domestic sales in Country B - eq. 12.52 openfix.append ds_k_B = c_k_B + g_k_B ' Value of output in country A - eq. 12.53 openfix.append y_A = s_A - im_A ' Value of output in Country B - eq. 12.54 openfix.append y_B = s_B - im_B ' Value of real output in country A - eq. 12.55 openfix.append y_k_A = s_k_A - im_k_A ' Value of real output in Country B - eq. 12.56 openfix.append y_k_B = s_k_B - im_k_B ' Price of output in country A - eq. 12.57 openfix.append py_A = y_A/y_k_A ' Price of output in Country B - eq. 12.58 openfix.append py_B = y_B/y_k_B ' Consumption in country A - eq. 12.59 openfix.append cons_A = c_k_A*pds_A ' Consumption in Country B - eq. 12.60 openfix.append cons_B = c_k_B*pds_B ' Government expenditure in country A - eq. 12.61 openfix.append g_A = g_k_A*pds_A ' Government expenditure in Country B - eq. 12.62 openfix.append g_B = g_k_B*pds_B ' Note: tax definitions in the book as eqns 12.63 & 12.64 are already as eqns 12.7 & 12.8 ' Employment in country A - eq. 12.65 openfix.append n_A = y_k_A/pr_A ' Employment in Country B - eq. 12.66 openfix.append n_B = y_k_B/pr_B ' ASSET DEMANDS ' Demand for country A bills in country A - eq. 12.67 openfix.append b_AA_d = v_A*(lambda10 + lambda11*r_A - lambda12*(r_B + dxre_B)) ' Demand for Country B bills in country A - eq. 12.68 openfix.append b_Aus_d = v_A*(lambda20 - lambda21*r_A + lambda22*(r_B + dxre_B)) ' Holding of money in country A - eq. 12.69 MODIFIED openfix.append h_A_h = v_A - b_AA_s - (b_Aus_s*xr_B) ' Demand for US bills in Country B - eq. 12.70 openfix.append b_Bus_d = v_B*(lambda40 + lambda41*r_B - lambda42*(r_A + dxre_A)) ' Demand for country A bills in Country B - eq. 12.71 openfix.append b_BA_d = v_B*(lambda50 - lambda51*r_B + lambda52*(r_A + dxre_A)) ' Holding of money in Country B - eq. 12.72 MODIFIED openfix.append h_B_h = v_B - b_Bus_s - (b_BA_s*xr_A) ' Note - we follow eqns numbering in the text... ' Expected change in country A exchange rate - eq. 12.75 ' openfix.append dxre_A = (xre_A - xr_A(-1))/xr_A ' Expected change in Country B exchange rate - eq. 12.76 ' openfix.append dxre_B = (xre_B - xr_B(-1))/xr_B ' ASSET SUPPLIES ' Suply of cash in Country B - eq. 12.77 MODIFIED openfix.append h_B_s = h_B_h ' Supply of Country B bills to Country B - eq. 12.78 openfix.append b_Bus_s = b_Bus_d ' Supply of Country B bills to Country B Central bank - eq. 12.79 openfix.append b_cb_Bus_s = b_cb_Bus_d ' Suply of cash in country A - eq. 12.80 MODIFIED openfix.append h_A_s = h_A_h ' Bills issued by Country B acquired by Country B - eq. 12.81 openfix.append b_AA_s = b_AA_d ' Supply of country A bills to country A Central bank - eq. 12.82 ' MODLER MACRO VERSION openfix.append b_cb_AA_s = b_cb_AA_d ' BOOK VERSION - eq. 12.82A ' openfix.append b_cb_AA_s = b_A_s - b_AA_s - b_BA_s ' Balance sheet of Country B Central bank - eq. 12.83 - expressed as changes openfix.append b_cb_Bus_d = b_cb_Bus_d(-1) + d(h_B_s) - d(or_B)*pg_B ' Balance sheet of Country A Central bank - eq. 12.84 openfix.append b_cb_AA_d = b_cb_AA_d(-1) + d(h_A_s) - d(b_cb_Aus_s)*xr_B - d(or_A)*pg_A ' Price of gold is equal in the two countries - eq. 12.85 openfix.append pg_A = pg_B/xr_A ' Country B exchange rate - eq. 12.86 openfix.append xr_B = 1/xr_A ' Equilibrium condition for bills issued by Country A acquired by Country B - eq. 12.87 openfix.append b_BA_s = b_BA_d*xr_B ' Equilibrium condition for bills issued by Country B acquired by Country A Central bank - eq. 12.88 openfix.append b_cb_Aus_d = b_cb_Aus_s*xr_B ' Country A Exchange rate - eq. 12.89FL - xr_A is now exogenous ' openfix.append xr_A = b_Aus_s/b_Aus_d ' Bills supply from Country A to Country B - eq. 12.89F openfix.append b_Aus_s = xr_A*b_Aus_d ' Supply of Country A bills to CountryS, now solved for b_cb_Aus_s - eq. 12.90F openfix.append b_cb_Aus_s = b_B_s - b_Bus_s - b_cb_Bus_d - b_Aus_s ' Government deficit in Country A openfix.append psbr_A = g_A + r_A(-1)*b_A_s(-1) - t_A - f_cb_A ' Government deficit in Country B openfix.append psbr_B = g_B + r_B(-1)*b_B_s(-1) - t_B - f_cb_B ' Net accumulation of financial assets in Country A openfix.append nafa_A = psbr_A + cab_A ' Net accumulation of financial assets in Country B openfix.append nafa_B = psbr_B + cab_B 'End of the model smpl 1952 @last ' Select the baseline Scenario openfix.scenario Baseline openfix.solve(i=p) 'CREATE NEW SHOCKS ON PASS-THROUGH COEFFICIENTS '1. VERY LOW PASS-THROUGH openfix.scenario "Scenario 1" openfix.override nu1x nu1m copy nu1x nu1x_1 copy nu1m nu1m_1 smpl 2020 @last nu1x_1 = 0.7 'from 0.5 nu1m_1 = 0.3 'from 0.7 smpl @all openfix.solve '2. LOW PASS-THROUGH openfix.scenario(n) "Scenario 2" openfix.override nu1x nu1m copy nu1x nu1x_2 copy nu1m nu1m_2 smpl 2020 @last nu1x_2 = 0.6 'from 0.5 nu1m_2 = 0.4 'from 0.7 smpl @all openfix.solve '3. FAIRLY LOW PASS-THROUGH openfix.scenario(n) "Scenario 3" openfix.override nu1x nu1m copy nu1x nu1x_3 copy nu1m nu1m_3 smpl 2020 @last nu1x_3 = 0.4 'from 0.5 nu1m_3 = 0.6 'from 0.7 smpl @all openfix.solve '4. FAIRLY HIGH PASS-THROUGH openfix.scenario(n) "Scenario 4" openfix.override nu1x nu1m copy nu1x nu1x_4 copy nu1m nu1m_4 smpl 2020 @last nu1x_4 = 0.3 'from 0.5 nu1m_4 = 0.7 'from 0.7 smpl @all openfix.solve '5. HIGH PASS-THROUGH openfix.scenario(n) "Scenario 5" openfix.override nu1x nu1m copy nu1x nu1x_5 copy nu1m nu1m_5 smpl 2020 @last nu1x_5 = 0.2 'from 0.5 nu1m_5 = 0.8 'from 0.7 smpl @all openfix.solve '6. VERY HIGH PASS-THROUGH openfix.scenario(n) "Scenario 6" openfix.override nu1x nu1m copy nu1x nu1x_6 copy nu1m nu1m_6 smpl 2020 @last nu1x_6 = 0.1 'from 0.5 nu1m_6 = 0.9 'from 0.7 smpl @all openfix.solve '7. ML CONDITION openfix.scenario(n) "Scenario 7" openfix.override nu1x nu1m copy nu1x nu1x_7 copy nu1m nu1m_7 smpl 2020 @last nu1x_7 = 0 'from 0.5 nu1m_7 = 1 'from 0.7 smpl @all openfix.solve '8. Exchange rate devaluation (for country A) openfix.scenario(n) "Scenario 8" openfix.override xr_A copy xr_A xr_A_8 smpl 2020 @last xr_A_8 = 0.99 'from 1 smpl @all openfix.solve '9. Exchange rate devaluation (for country A) with very low pass-through openfix.scenario(n) "Scenario 9" openfix.override xr_A nu1x nu1m copy xr_A xr_A_9 copy nu1x nu1x_9 copy nu1m nu1m_9 smpl 2020 @last xr_A_9 = 0.99 'from 1 smpl @all nu1x_9 = 0.7 'from 0.5 nu1m_9 = 0.3 'from 0.7 openfix.solve '10. Exchange rate devaluation (for country A) with low pass-through openfix.scenario(n) "Scenario 10" openfix.override xr_A nu1x nu1m copy xr_A xr_A_10 copy nu1x nu1x_10 copy nu1m nu1m_10 smpl 2020 @last xr_A_10 = 0.99 'from 1 smpl @all nu1x_10 = 0.6 'from 0.5 nu1m_10 = 0.4 'from 0.7 openfix.solve '11. Exchange rate devaluation (for country A) with fairly low pass-through openfix.scenario(n) "Scenario 11" openfix.override xr_A nu1x nu1m copy xr_A xr_A_11 copy nu1x nu1x_11 copy nu1m nu1m_11 smpl 2020 @last xr_A_11 = 0.99 'from 1 smpl @all nu1x_11 = 0.4 'from 0.5 nu1m_11 = 0.6 'from 0.7 openfix.solve '12. Exchange rate devaluation (for country A) with fairly high pass-through openfix.scenario(n) "Scenario 12" openfix.override xr_A nu1x nu1m copy xr_A xr_A_12 copy nu1x nu1x_12 copy nu1m nu1m_12 smpl 2020 @last xr_A_12 = 0.99 'from 1 smpl @all nu1x_12 = 0.3 'from 0.5 nu1m_12 = 0.7 'from 0.7 openfix.solve '13. Exchange rate devaluation (for country A) with high pass-through openfix.scenario(n) "Scenario 13" openfix.override xr_A nu1x nu1m copy xr_A xr_A_13 copy nu1x nu1x_13 copy nu1m nu1m_13 smpl 2020 @last xr_A_13 = 0.99 'from 1 smpl @all nu1x_13 = 0.2 'from 0.5 nu1m_13 = 0.8 'from 0.7 openfix.solve '14. Exchange rate devaluation (for country A) with very high pass-through openfix.scenario(n) "Scenario 14" openfix.override xr_A nu1x nu1m copy xr_A xr_A_14 copy nu1x nu1x_14 copy nu1m nu1m_14 smpl 2020 @last xr_A_14 = 0.99 'from 1 smpl @all nu1x_14 = 0.1 'from 0.5 nu1m_14 = 0.9 'from 0.7 openfix.solve '15. Exchange rate devaluation (for country A) with MLA openfix.scenario(n) "Scenario 15" openfix.override xr_A nu1x nu1m copy xr_A xr_A_15 copy nu1x nu1x_15 copy nu1m nu1m_15 smpl 2020 @last xr_A_15 = 0.99 'from 1 smpl @all nu1x_15 = 0 'from 0.5 nu1m_15 = 1 'from 0.7 openfix.solve '16. Exchange rate devaluation (for country A) with very low pass-through and sum of elasticities = 0.7 openfix.scenario(n) "Scenario 16" openfix.override xr_A eps1 nu1x nu1m copy xr_A xr_A_16 copy nu1x nu1x_16 copy nu1m nu1m_16 copy eps1 eps1_16 smpl 2020 @last xr_A_16 = 0.99 'from 1 smpl @all nu1x_16 = 0.7 'from 0.5 nu1m_16 = 0.3 'from 0.7 eps1_16 = 0.2 'from 0.5 openfix.solve '17. Exchange rate devaluation (for country A) with very high pass-through and sum of elasticities = 0.7 openfix.scenario(n) "Scenario 17" openfix.override xr_A eps1 nu1x nu1m copy xr_A xr_A_17 copy nu1x nu1x_17 copy nu1m nu1m_17 copy eps1 eps1_17 smpl 2020 @last xr_A_17 = 0.99 'from 1 smpl @all nu1x_17 = 0.1 'from 0.5 nu1m_17 = 0.9 'from 0.7 eps1_17 = 0.2 'from 0.5 openfix.solve '18. Exchange rate devaluation (for country A) with very low pass-through and sum of elasticities = 1.3 openfix.scenario(n) "Scenario 18" openfix.override xr_A eps1 nu1x nu1m copy xr_A xr_A_18 copy nu1x nu1x_18 copy nu1m nu1m_18 copy eps1 eps1_18 smpl 2020 @last xr_A_18 = 0.99 'from 1 smpl @all nu1x_18 = 0.7 'from 0.5 nu1m_18 = 0.3 'from 0.7 eps1_18 = 0.8 'from 0.5 openfix.solve '19. Exchange rate devaluation (for country A) with very high pass-through and sum of elasticities = 1.3 openfix.scenario(n) "Scenario 19" openfix.override xr_A eps1 nu1x nu1m copy xr_A xr_A_19 copy nu1x nu1x_19 copy nu1m nu1m_19 copy eps1 eps1_19 smpl 2020 @last xr_A_19 = 0.99 'from 1 smpl @all nu1x_19 = 0.1 'from 0.5 nu1m_19 = 0.9 'from 0.7 eps1_19 = 0.8 'from 0.5 openfix.solve '20. Exchange rate devaluation (for country A) with MLA and sum of elasticities = 0.9 openfix.scenario(n) "Scenario 20" openfix.override xr_A eps1 nu1x nu1m copy xr_A xr_A_20 copy nu1x nu1x_20 copy nu1m nu1m_20 copy eps1 eps1_20 smpl 2020 @last xr_A_20 = 0.99 'from 1 smpl @all nu1x_20 = 0 'from 0.5 nu1m_20 = 1 'from 0.7 eps1_20 = 0.4 'from 0.5 openfix.solve '21. Exchange rate devaluation (for country A) with MLA and sum of elasticities = 1 openfix.scenario(n) "Scenario 21" openfix.override xr_A eps1 nu1x nu1m copy xr_A xr_A_21 copy nu1x nu1x_21 copy nu1m nu1m_21 copy eps1 eps1_21 smpl 2020 @last xr_A_21 = 0.99 'from 1 smpl @all nu1x_21 = 0 'from 0.5 nu1m_21 = 1 'from 0.7 eps1_21 = 0.5 'from 0.5 openfix.solve '22. Exchange rate devaluation (for country A) with MLA and sum of elasticities = 1.1 openfix.scenario(n) "Scenario 22" openfix.override xr_A eps1 nu1x nu1m copy xr_A xr_A_22 copy nu1x nu1x_22 copy nu1m nu1m_22 copy eps1 eps1_22 smpl 2020 @last xr_A_22 = 0.99 'from 1 smpl @all nu1x_22 = 0 'from 0.5 nu1m_22 = 1 'from 0.7 eps1_22 = 0.6 'from 0.5 openfix.solve '23. Exchange rate devaluation (for country A) with MLA and sum of elasticities = 1.2 openfix.scenario(n) "Scenario 23" openfix.override xr_A eps1 nu1x nu1m copy xr_A xr_A_23 copy nu1x nu1x_23 copy nu1m nu1m_23 copy eps1 eps1_23 smpl 2020 @last xr_A_23 = 0.99 'from 1 smpl @all nu1x_23 = 0 'from 0.5 nu1m_23 = 1 'from 0.7 eps1_23 = 0.7 'from 0.5 openfix.solve '24. Exchange rate devaluation (for country A) with MLA and sum of elasticities = 1.3 openfix.scenario(n) "Scenario 24" openfix.override xr_A eps1 nu1x nu1m copy xr_A xr_A_24 copy nu1x nu1x_24 copy nu1m nu1m_24 copy eps1 eps1_24 smpl 2020 @last xr_A_24 = 0.99 'from 1 smpl @all nu1x_24 = 0 'from 0.5 nu1m_24 = 1 'from 0.7 eps1_24 = 0.8 'from 0.5 openfix.solve '25. Exchange rate devaluation (for country A) with MLA and sum of elasticities = 1.4 openfix.scenario(n) "Scenario 25" openfix.override xr_A eps1 nu1x nu1m copy xr_A xr_A_25 copy nu1x nu1x_25 copy nu1m nu1m_25 copy eps1 eps1_25 smpl 2020 @last xr_A_25 = 0.99 'from 1 smpl @all nu1x_25 = 0 'from 0.5 nu1m_25 = 1 'from 0.7 eps1_25 = 0.9 'from 0.5 openfix.solve '26. Exchange rate devaluation (for country A) with MLA and sum of elasticities = 1.5 openfix.scenario(n) "Scenario 26" openfix.override xr_A eps1 nu1x nu1m copy xr_A xr_A_26 copy nu1x nu1x_26 copy nu1m nu1m_26 copy eps1 eps1_26 smpl 2020 @last xr_A_26 = 0.99 'from 1 smpl @all nu1x_26 = 0 'from 0.5 nu1m_26 = 1 'from 0.7 eps1_26 = 1 'from 0.5 openfix.solve '*********************************************************************************************************************************************************** 'Create charts ' Creates chart of trade balances smpl 2019 2050 graph tb.line tb_A_1-tb_A_0 tb_A_2-tb_A_0 tb_A_3-tb_A_0 tb_A_4-tb_A_0 tb_A_5-tb_A_0 tb_A_6-tb_A_0 tb_A_7-tb_A_0 tb.draw(shade, bottom, color(191,252,255)) 2019 2021 tb.draw(line, left, color(black)) 0 tb.options linepat tb.axis mirror tb.setelem(1) lcolor(0,128,64) lwidth(2) lpat(1) tb.setelem(2) lcolor(0,198,99) lwidth(2) lpat(1) tb.setelem(3) lcolor(36,255,146) lwidth(2) lpat(1) tb.setelem(4) lcolor(252,165,3) lwidth(2) lpat(1) tb.setelem(5) lcolor(245,10,10) lwidth(2) lpat(1) tb.setelem(6) lcolor(175,0,0) lwidth(2) lpat(1) tb.setelem(7) lcolor(165,34,221) lwidth(2) lpat(3) tb.name(1) Very low pass-through tb.name(2) Low pass-through tb.name(3) Fairly low pass-through tb.name(4) Fairly high pass-through tb.name(5) High pass-through tb.name(6) Very high pass-through tb.name(7) MLA (u1=0, v1=1) tb.addtext(t,just(c),font(20)) (a) Trade balance of country A: difference \n with baseline (u1=0.5, v1=0.7) tb.legend -display 'show tb ' Creates chart of exchange rate smpl 2019 2025 graph xr.line xr_A_8/xr_A xr.draw(shade, bottom, color(191,252,255)) 2019 2021 xr.draw(line, left, color(black)) 1 xr.options linepat xr.axis mirror xr.setelem(1) lcolor(5,82,123) lwidth(2) lpat(1) xr.addtext(t,just(c),font(20)) (a) Exchange rate of country A xr.addtext(ibr,just(c),font(20),textcolor(5,82,123)) -1% xr.legend position(bc) 'show xr ' Creates chart of NAFA smpl 2019 2050 graph nafa.line nafa_A_1-nafa_A_0 nafa_A_2-nafa_A_0 nafa_A_3-nafa_A_0 nafa_A_4-nafa_A_0 nafa_A_5-nafa_A_0 nafa_A_6-nafa_A_0 nafa_A_7-nafa_A_0 nafa.draw(shade, bottom, color(191,252,255)) 2019 2021 nafa.options linepat nafa.axis mirror nafa.setelem(1) lcolor(0,128,64) lwidth(2) lpat(1) nafa.setelem(2) lcolor(0,198,99) lwidth(2) lpat(1) nafa.setelem(3) lcolor(36,255,146) lwidth(2) lpat(1) nafa.setelem(4) lcolor(252,165,3) lwidth(2) lpat(1) nafa.setelem(5) lcolor(245,10,10) lwidth(2) lpat(1) nafa.setelem(6) lcolor(175,0,0) lwidth(2) lpat(1) nafa.setelem(7) lcolor(165,34,221) lwidth(2) lpat(3) nafa.name(1) Very low pass-through nafa.name(2) Low pass-through nafa.name(3) Fairly low pass-through nafa.name(4) Fairly high pass-through nafa.name(5) High pass-through nafa.name(6) Very high pass-through nafa.name(7) MLA (u1=0, v1=1) nafa.addtext(t,just(c),font(20)) (c) Net financial assets of country A \n following currency devaluation nafa.legend -display 'show nafa ' Creates chart of CAB smpl 2019 2050 graph cab.line cab_A_1-cab_A_0 cab_A_2-cab_A_0 cab_A_3-cab_A_0 cab_A_4-cab_A_0 cab_A_5-cab_A_0 cab_A_6-cab_A_0 cab_A_7-cab_A_0 cab.draw(shade, bottom, color(191,252,255)) 2019 2021 cab.draw(line, left, color(black)) 0 cab.options linepat cab.axis mirror cab.setelem(1) lcolor(0,128,64) lwidth(2) lpat(1) cab.setelem(2) lcolor(0,198,99) lwidth(2) lpat(1) cab.setelem(3) lcolor(36,255,146) lwidth(2) lpat(1) cab.setelem(4) lcolor(252,165,3) lwidth(2) lpat(1) cab.setelem(5) lcolor(245,10,10) lwidth(2) lpat(1) cab.setelem(6) lcolor(175,0,0) lwidth(2) lpat(1) cab.setelem(7) lcolor(165,34,221) lwidth(2) lpat(3) cab.name(1) Very low pass-through cab.name(2) Low pass-through cab.name(3) Fairly low pass-through cab.name(4) Fairly high pass-through cab.name(5) High pass-through cab.name(6) Very high pass-through cab.name(7) MLA (u1=0, v1=1) cab.addtext(t,just(c),font(20)) (b) CAB of country A: difference \n with baseline (u1=0.5, v1=0.7) cab.legend position(bc) 'show cab ' Creates chart of CAB following shock to exchange rate (different pass-through) smpl 2019 2050 graph cab2.line cab_A_8 cab_A_10 cab_A_12 cab_A_13 cab_A_15 cab2.draw(shade, bottom, color(191,252,255)) 2019 2021 cab2.options linepat cab2.axis mirror cab2.setelem(1) lcolor(black) lwidth(2) lpat(1) cab2.setelem(2) lcolor(0,198,99) lwidth(2) lpat(2) cab2.setelem(3) lcolor(252,165,3) lwidth(2) lpat(3) cab2.setelem(4) lcolor(245,10,10) lwidth(2) lpat(4) cab2.setelem(5) lcolor(165,34,221) lwidth(2) lpat(5) cab2.name(1) Baseline (Godley and Lavoie 2007) cab2.name(2) Low pass-through cab2.name(3) Medium pass-through cab2.name(4) High pass-through cab2.name(5) MLA (u1=0, v1=1) cab2.addtext(t,just(c),font(20)) (a) CAB of country A following currency \n devaluation cab2.legend -display 'show cab2 ' Creates chart of trade balance following shock to exchange rate (different pass-through) smpl 2019 2050 graph tb2.line tb_A_8 tb_A_10 tb_A_12 tb_A_13 tb_A_15 tb2.draw(shade, bottom, color(191,252,255)) 2019 2021 tb2.options linepat tb2.axis mirror tb2.setelem(1) lcolor(black) lwidth(2) lpat(1) tb2.setelem(2) lcolor(0,198,99) lwidth(2) lpat(2) tb2.setelem(3) lcolor(252,165,3) lwidth(2) lpat(3) tb2.setelem(4) lcolor(245,10,10) lwidth(2) lpat(4) tb2.setelem(5) lcolor(165,34,221) lwidth(2) lpat(5) tb2.name(1) Baseline (Godley and Lavoie 2007) tb2.name(2) Low pass-through tb2.name(3) Medium pass-through tb2.name(4) High pass-through tb2.name(5) MLA (u1=0, v1=1) tb2.addtext(t,just(c),font(20)) (b) Trade balance of country A following \n currency devaluation tb2.legend -display 'show tb2 ' Creates chart of factor income following shock to exchange rate (different pass-through) smpl 2019 2050 graph inc.line finc_A_8 finc_A_10 finc_A_12 finc_A_13 finc_A_15 inc.draw(shade, bottom, color(191,252,255)) 2019 2021 inc.options linepat inc.axis mirror inc.setelem(1) lcolor(black) lwidth(2) lpat(1) inc.setelem(2) lcolor(0,198,99) lwidth(2) lpat(2) inc.setelem(3) lcolor(252,165,3) lwidth(2) lpat(3) inc.setelem(4) lcolor(245,10,10) lwidth(2) lpat(4) inc.setelem(5) lcolor(165,34,221) lwidth(2) lpat(5) inc.name(1) Baseline (Godley and Lavoie 2007) inc.name(2) Low pass-through inc.name(3) Medium pass-through inc.name(4) High pass-through inc.name(5) MLA (u1=0, v1=1) inc.addtext(t,just(c),font(20)) (c) Factor income to country A following \n currency devaluation inc.legend -display 'show inc ' Creates chart of GDP following shock to exchange rate (different pass-through) smpl 2019 2050 graph gdp.line y_A_8 y_A_10 y_A_12 y_A_13 y_A_15 gdp.draw(shade, bottom, color(191,252,255)) 2019 2021 gdp.options linepat gdp.axis mirror gdp.setelem(1) lcolor(black) lwidth(2) lpat(1) gdp.setelem(2) lcolor(0,198,99) lwidth(2) lpat(2) gdp.setelem(3) lcolor(252,165,3) lwidth(2) lpat(3) gdp.setelem(4) lcolor(245,10,10) lwidth(2) lpat(4) gdp.setelem(5) lcolor(165,34,221) lwidth(2) lpat(5) gdp.name(1) Baseline (Godley and Lavoie 2007) gdp.name(2) Low pass-through gdp.name(3) Medium pass-through gdp.name(4) High pass-through gdp.name(5) MLA (u1=0, v1=1) gdp.addtext(t,just(c),font(20)) (d) GDP of country A following currency \n devaluation gdp.legend -display 'show gdp ' Creates chart of government deficit following shock to exchange rate (different pass-through) smpl 2019 2050 graph psbr.line psbr_A_8 psbr_A_10 psbr_A_12 psbr_A_13 psbr_A_15 psbr.draw(shade, bottom, color(191,252,255)) 2019 2021 psbr.options linepat psbr.axis mirror psbr.setelem(1) lcolor(black) lwidth(2) lpat(1) psbr.setelem(2) lcolor(0,198,99) lwidth(2) lpat(2) psbr.setelem(3) lcolor(252,165,3) lwidth(2) lpat(3) psbr.setelem(4) lcolor(245,10,10) lwidth(2) lpat(4) psbr.setelem(5) lcolor(165,34,221) lwidth(2) lpat(5) psbr.name(1) Baseline (Godley and Lavoie 2007) psbr.name(2) Low pass-through psbr.name(3) Medium pass-through psbr.name(4) High pass-through psbr.name(5) MLA (u1=0, v1=1) psbr.addtext(t,just(c),font(20)) (e) Country A government deficit following \n currency devaluation psbr.legend position(bc) 'show psbr ' Creates chart of (change in) NAFA following shock to exchange rate (different pass-through) smpl 2019 2050 graph nafa2.line nafa_A_8 nafa_A_10 nafa_A_12 nafa_A_13 nafa_A_15 nafa2.draw(shade, bottom, color(191,252,255)) 2019 2021 nafa2.options linepat nafa2.axis mirror nafa2.setelem(1) lcolor(black) lwidth(2) lpat(1) nafa2.setelem(2) lcolor(0,198,99) lwidth(2) lpat(2) nafa2.setelem(3) lcolor(252,165,3) lwidth(2) lpat(3) nafa2.setelem(4) lcolor(245,10,10) lwidth(2) lpat(4) nafa2.setelem(5) lcolor(165,34,221) lwidth(2) lpat(5) nafa2.name(1) Baseline (Godley and Lavoie 2007) nafa2.name(2) Low pass-through nafa2.name(3) Medium pass-through nafa2.name(4) High pass-through nafa2.name(5) MLA (u1=0, v1=1) nafa2.addtext(t,just(c),font(20)) (f) Change in net financial assets of country A \n following currency devaluation nafa2.legend -display 'show nafa ' Creates chart of prices following shock to exchange rate (low pass-through) smpl 2019 2025 graph pricelow.line py_A_10 pds_A_10 ps_A_10 px_A_10 pm_A_10 p_madeA_10 pricelow.draw(shade, bottom, color(191,252,255)) 2019 2021 pricelow.options linepat pricelow.axis mirror pricelow.setelem(1) lcolor(black) lwidth(2) lpat(1) pricelow.setelem(2) lcolor(purple) lwidth(2) lpat(2) pricelow.setelem(3) lcolor(red) lwidth(2) lpat(3) pricelow.setelem(4) lcolor(orange) lwidth(2) lpat(4) pricelow.setelem(5) lcolor(blue) lwidth(2) lpat(5) pricelow.setelem(6) lcolor(green) lwidth(2) lpat(6) pricelow.name(1) Output pricelow.name(2) Domestic sales pricelow.name(3) Sales pricelow.name(4) Export pricelow.name(5) Import pricelow.name(6) Production pricelow.addtext(t,just(c),font(20)) (a) Prices of country A following currency \n devaluation (low pass-through) pricelow.legend -display 'show pricelow ' Creates chart of prices following shock to exchange rate (high pass-through) smpl 2019 2025 graph pricehigh.line py_A_13 pds_A_13 ps_A_13 px_A_13 pm_A_13 p_madeA_13 pricehigh.draw(shade, bottom, color(191,252,255)) 2019 2021 pricehigh.options linepat pricehigh.axis mirror pricehigh.setelem(1) lcolor(black) lwidth(2) lpat(1) pricehigh.setelem(2) lcolor(purple) lwidth(2) lpat(2) pricehigh.setelem(3) lcolor(red) lwidth(2) lpat(3) pricehigh.setelem(4) lcolor(orange) lwidth(2) lpat(4) pricehigh.setelem(5) lcolor(blue) lwidth(2) lpat(5) pricehigh.setelem(6) lcolor(green) lwidth(2) lpat(6) pricehigh.name(1) Output pricehigh.name(2) Domestic sales pricehigh.name(3) Sales pricehigh.name(4) Export pricehigh.name(5) Import pricehigh.name(6) Production pricehigh.addtext(t,just(c),font(20)) (b) Prices of country A following currency \n devaluation (high pass-through) pricehigh.legend position(bc) 'show pricehigh ' Creates chart of prices following shock to exchange rate (full pass-through) smpl 2019 2025 graph pricemc.line py_A_15 pds_A_15 ps_A_15 px_A_15 pm_A_15 p_madeA_15 pricemc.draw(shade, bottom, color(191,252,255)) 2019 2021 pricemc.options linepat pricemc.axis mirror pricemc.setelem(1) lcolor(black) lwidth(2) lpat(1) pricemc.setelem(2) lcolor(purple) lwidth(2) lpat(2) pricemc.setelem(3) lcolor(red) lwidth(2) lpat(3) pricemc.setelem(4) lcolor(orange) lwidth(2) lpat(4) pricemc.setelem(5) lcolor(blue) lwidth(2) lpat(5) pricemc.setelem(6) lcolor(green) lwidth(2) lpat(6) pricemc.name(1) Output pricemc.name(2) Domestic sales pricemc.name(3) Sales pricemc.name(4) Export pricemc.name(5) Import pricemc.name(6) Production pricemc.addtext(t,just(c),font(20)) (c) Prices of country A following currency \n devaluation (full pass-through) pricemc.legend -display 'show pricemc ' Creates chart of CAB following shock to exchange rate (full pass-through and different elasticity values) smpl 2019 2050 graph cab3fix.line cab_A_16 cab_A_9 cab_A_18 cab_A_17 cab_A_14 cab_A_19 cab3fix.draw(shade, bottom, color(191,252,255)) 2019 2021 cab3fix.draw(line, left, color(black)) 0 cab3fix.options linepat cab3fix.axis mirror cab3fix.setelem(1) lcolor(0,128,64) lwidth(2) lpat(1) cab3fix.setelem(2) lcolor(0,198,99) lwidth(2) lpat(1) cab3fix.setelem(3) lcolor(36,255,146) lwidth(2) lpat(1) cab3fix.setelem(4) lcolor(252,165,3) lwidth(2) lpat(1) cab3fix.setelem(5) lcolor(245,10,10) lwidth(2) lpat(1) cab3fix.setelem(6) lcolor(175,0,0) lwidth(2) lpat(1) cab3fix.name(1) Very low pass-through and sum of price elasticities of import & export < 1 cab3fix.name(2) Very low pass-through and sum of price elasticities of import & export = 1 cab3fix.name(3) Very low pass-through and sum of price elasticities of import & export > 1 cab3fix.name(4) Very high pass-through and sum of price elasticities of import & export < 1 cab3fix.name(5) Very high pass-through and sum of price elasticities of import & export = 1 cab3fix.name(6) Very high pass-through and sum of price elasticities of import & export > 1 cab3fix.addtext(t,just(c),font(20)) (a) CAB of country A following currency devaluation cab3fix.legend position(bc) 'show cab3fix ' Creates chart of CAB following shock to exchange rate (full pass-through and different elasticity values) smpl 2019 2050 graph sensfix.line cab_A_20 cab_A_21 cab_A_22 cab_A_23 cab_A_24 cab_A_25 cab_A_26 sensfix.draw(shade, bottom, color(191,252,255)) 2019 2021 sensfix.draw(line, left, color(black)) 0 sensfix.options linepat sensfix.axis mirror sensfix.setelem(7) lcolor(0,128,64) lwidth(2) lpat(1) sensfix.setelem(6) lcolor(0,198,99) lwidth(2) lpat(1) sensfix.setelem(5) lcolor(36,255,146) lwidth(2) lpat(1) sensfix.setelem(4) lcolor(252,165,3) lwidth(2) lpat(1) sensfix.setelem(3) lcolor(245,10,10) lwidth(2) lpat(1) sensfix.setelem(2) lcolor(175,0,0) lwidth(2) lpat(1) sensfix.setelem(1) lcolor(165,34,221) lwidth(2) lpat(1) sensfix.name(1) MLA and sum of price elasticities of import & export = 0.9 sensfix.name(2) MLA and sum of price elasticities of import & export = 1.0 sensfix.name(3) MLA and sum of price elasticities of import & export = 1.1 sensfix.name(4) MLA and sum of price elasticities of import & export = 1.2 sensfix.name(5) MLA and sum of price elasticities of import & export = 1.3 sensfix.name(6) MLA and sum of price elasticities of import & export = 1.4 sensfix.name(7) MLA and sum of price elasticities of import & export = 1.5 sensfix.addtext(t,just(c),font(20)) (a) CAB of country A following currency devaluation sensfix.legend position(bc) 'show sensfix '*********************************************************************************************************************************************************** 'Group and plot charts graph graph2.merge cab2 tb2 inc gdp psbr nafa2 graph2.legend font(20) graph2.axis(left) font(20) graph2.axis(right) font(20) graph2.axis(bottom) font(20) graph2.axis(top) font(20) graph2.axis ticksnone graph2.options gridauto graph2.options fillcolor(white) backcolor(white) gridcolor(200,255,240) graph2.datelabel format(yyyy) graph2.align(3, 1.6, 1.6) graph2.legend -inbox show graph2 graph graph3.merge pricelow pricehigh pricemc graph3.legend font(20) graph3.axis(left) font(20) graph3.axis(right) font(20) graph3.axis(bottom) font(20) graph3.axis(top) font(20) graph3.axis ticksnone graph3.options gridauto graph3.options fillcolor(white) backcolor(white) gridcolor(200,255,240) graph3.datelabel format(yyyy) graph3.align(3, 1.6, 1.6) graph3.legend -inbox show graph3 'Restore full sample smpl @all