Appendix A: Model Specifiction, Parameter Estimates and Test Statistics for Model 1 | RDP 1977-05: Modelling Monetary Disequilibrium

RDP 1977-05: Modelling Monetary Disequilibrium Appendix A: Model Specifiction, Parameter Estimates and Test Statistics for Model 1

P.D. Jonson and J.C. Taylor

September 1977

Group 1 Equations

1. Household expenditure, demand for money

2. Net business fixed investment

3. Changes in labour demand, desired inventories

4. Price of output

5. Price of exports

6. Average weekly earnings

7. Het capital inflow

8. Volume of money

Group 2 Equations

9. Labour supply

10. Exports of goods and services

11. Imports of goods and services

12. Output of goods

13. Price of government current goods and services

14. Non-bank demand for government securities

15. Bank advances

16. Direct taxes

17. Indirect taxes

18. Foreign Reserves

19. Change in inventories

20. Bond rate

21. Exchange rate

22. Interest payments on government Debt

23. Domestic credit expansion

The variables used in the model are:^[1]

A	all bank advances to private sector
B	bonds held by private (non-bank) sector
C*	real cash benefits to persons
C	domestic credit
d	real household expenditure
E	exchange rate ($A/$US)
F	net Australian capital owned by overseas residents
	real Australian government current spending
	real Australian government capital spending
i	real imports of goods and services
I	interest payment on government debt
k	net real business fixed investment
K	stock of business fixed capital
l	change in labor demand
L	labor demand
M	stock of money (M3)
N	labor supply
P	price of output
P_g	price of government consumption goods and services
	Australian import prices ($US)
^P_x	price of exports
	world prices ($US)
^P_wl	wool prices ($US)
Q*	dummy variable to allow world prices relative to domestic prices to have a direct influence on inflation until 1971(3), but not afterwards
QA*	dummy variable for requests to limit advances, 1961
QD*	dummy variable for dock strike, 1969
QE*	dummy variable for exchange rate expectations, 1972 to 1975
QER*	dummy variable for timing of exchange rate changes, 1972, 1973, 1974
	dummy variable for capital controls, 1973, 1974
	dummy variable for capital outflow 1975(4)
QS*	dummy variable for credit squeeze, 1961, 1973
QUS*	dummy variable for devaluation of $US, 1973
R	foreign exchange reserves
r	bond rate
	world interest rate
S	real sales
t*	time
	income tax rate
	expenditure tax rate
	tariff rate
T₁	direct tax receipts
^T2	indirect tax receipts
V	stock of inventories of goods
W	average weekly earnings
	real award wages
x	real exports of goods and services
y	real output (net of depreciation)
Z*	required asset ratio for all banks
λ₁	target rate of growth of inventories
λ₂	target rate of monetary growth
λ₃	regular growth of real award wages
λ₄	average growth rate of world trade
* The items marked with an asterisk are exogenous for estimation purposes.

TABLE A.1: PARAMETER ESTIMATES FOR GROUP 1 EQUATIONS FOR MODEL 1*
1959(3) – 1970(4)
MODEL 1
Parameter	Estimate	t-ratio
α₁	.6206	6.58
α₂	1.1777	5.37
α₃	.1
α₄	2.3518	7.96
α₅	.1426	5.82
α₆	.0073	.70
α₇	.2184	4.94
α₈	.6907	4.17
α₉	.3008	4.87
α₁₀	.0874	7.24
α₁₁	.1779	1.18
γ₁	−.2428	5.40
γ₂	0.0
γ₃	−.0793	3.27
γ₄	−.1213	4.59
γ₅	0.0
γ₆	−.2363	6.27
γ₇	.0619	3.30
λ₁	.012
λ₂	.0166	13.34
λ₃	.0025
λ₄	.020
β₁	1.0
β₂	−.9985	2.76
β₃	−3.4070	4.11
β₄	−2.5599	4.54
β₅	−.01
β₆	.1145	1.91
β₇	.3
β₈	−.2030	4.81
β₉	.7
β₁₀	.8
β₁₁	.0157	2.42
β₁₂	0.0
β₁₃	.1
β₁₄	0.0
β₁₅	.1985	12.35
β₁₆	1.3071	7.10
β₁₇	.4038	5.67
β₁₈	.2301	3.38
β₁₉	−.01
β₂₀	.0601	4.13
β₂₁	7.9549	2.93
β₂₂	−.4138	4.80
β₂₃	2.3652	8.48
* In this and all other tables, parameters without t-ratios are constrained at the given value.

TABLE A.2: PARAMETER ESTIMATES FOR GROUP 2 EQUATIONS FOR MODEL 1
1959(3) – 1975(4)
Parameter	Estimtate	t-ratio
α₁₂	.1738	7.34
α₁₃	3.7881	8.36
α₁₄	2.0
α₁₅	1.2171	7.12
α₁₆	.5
α₁₇	1.5228	5.51
α₁₈	.1427	9.43
α₁₉	.26
α₂₀	1.3304	6.54
α₂₁	.1844	2.89
α₂₂	1.1577	5.30
α₂₃	−.0083	.83
α₂₄	.0059	.43
α₂₅	.0223	2.65
β₂₄	−.0483	.88
β₂₅	−1.0454	7.91
β₂₆	.4568	5.39
β₂₇	−.6142	10.01
β₂₈	.5
β₂₉	3.1905	5.74
β₃₀	.0141	.39
β₃₁	−.8728	11.26
β₃₂	.2095	6.27
β₃₃	.8202	35.65
β₃₄	11.0811	6.62
β₃₅	−.2
β₃₆	1.8597	18.11
β₃₇	.1043	5.78
β₃₈	−.0140	3.17
β₃₉	.0373	11.01
β₄₀	−2.9910	4.26
β₄₁	4.4974	5.82
β₄₂	1.0477	38.00
β₄₃	.0080	11.62
β₄₄	−.0042	4.83
β₄₅	.1389	7.30
β₄₆	−.0233	8.74
β₄₇	.1139	5.21
β₄₈	−.0214	4.63
β₄₉	.3250	2.88
β₅₀	−.0334	1.89
β₅₁	.2134	1.75
β₅₂	.1063	12.93
β₅₃	.0592	12.69

TABLE A.3: TEST STATISTICS FOR MODEL 1⁺
Variable	r²	RMSPE₁	RMSPE₂
d	.1342	.9	2.3
k	.4133	.002*	.002*
l	.3432	.005*.	.004*
P	.4857	1.0	3.2
P_x	.2282	2.9	5.6
W	.6284	.8	6.0
F	.5741	1.6	8.2
M	.7194	.6	5.2
N	.8209	.2	1.3
x	.4094	7.5	6.2
i	.4194	4.5	6.8
y	.2637	2.2	2.6
P_g	.1825	2.3	4.8
S	.3388	1.4	6.3
A	.5440	1.0	7.5
T₁	.4477	7.5	8.2
T₂	.2863	2.6	3.7
R	.4365	5.5	19.9
v	.5958	1.2	8.6
r	.6622	.001*	.004*
B	.7528	.8	4.4
I	.1445	1.0	2.6
C	.6399	.9	6.9
A	.6755	.1	1.5
L	.6147	.2	1.5
+ Test statistics are x² denotes systens coefficient of determination defined as the simple correlation coefficient between the actual and estimated values. RMSPE₁ denotes root mean square percentage error from a one period (within sample) simulation. RMSPE₂ denotes root mean square percentage error for a dynamic (within sample) simulation. Figures denoted * are root mean square errors and not root mean square percentage errors.

Footnote

The precise definitions and sources for all variables are given in Appendix B of Jonson, Moses and Wymer (1976). [1]