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Two general equilibrium models of the U.S. economy
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A general equilibrium approach is used to analyze the impact of inflation on the real sector of the economy and to assess alternative energy policies in the U. S. In the first part of the thesis a small two-sector model of the economy with assets markets and specific labor supply assumptions is developed.
The economy produces consumption and investment goods with different technologies exhibiting constant returns to scale. The consumption goods industry is assumed to be relatively more capital intensive.
Rybczinski's theorem is used to show that, under these circumstances and for a given price of capital relative to the price of consumption goods, an increase in labor supply leads to an increase in the output of the investment goods industry and a decrease in the output of the consumption goods industry. The exact magnitude of these effects on the composition of output is determined.
In the assets markets, consumers allocate their wealth among money, bonds and physical capital, according to their respective rates of return.
It is shown that the rate of return on capital decreases as the relative price of capital increases.
The model is closed with a consumption function, based on consumer's disposable income, including expected capital gains and losses.
The impact of inflation is analyzed: in assets markets, the increased demand for physical capital drives up its relative price; in the labor market, an increased rate of inflation induces more workers to look for a job. As the labor supply increases, the output of consumption goods tends to decrease, because of the Rybczinski effect. The higher relative price of capital also reduces the supply of consumption goods. Excess demand can occur if the losses due to the decrease in the real value of the government debt do not induce consumers to increase their savings sufficiently.
Some preliminary data for the U. S. economy is presented, showing that under fairly plausible circumstances an increase in inflation can indeed lead to excess demand for consumption goods, fueling additional price increases.
Further results are obtained, to account for different assumptions on consumer behavior and labor supply. In all cases, the impact of inflation on the supply side of the economy is shown to have potentially the
the consequence of making prices increase persistently, at least in the short term.
In the second part of the thesis a disaggregate model of the U. S. economy is developed and used to study the impacts of energy policies.
The model includes nine production sectors, twelve consumer groups and sixteen consumption goods; all components of government activity - the collection of taxes, the payment of transfers, the use of labor and capital and the purchase of goods and services; and a simplified treatment of exports and imports. The general equilibrium nature of the model requires that all agents be on their budget constraints and that for every good or factor supply exactly match demand.
The model is parameterized using estimates for the most important coefficients obtained from published econometric studies. The remaining estimates are identified from an internally consistent data set for
1973.
The sources of data and the procedures used to achieve consistency are presented.
The production submodel is described as consisting of an input output structure with flexible coefficients which adjust over time in response to changes in relative factor prices. For each of the nine sectors - of
which four are energy using and five are energy supplying sectors - a translog average cost function describes the technology from which the cost minimizing input output coefficients are derived. The actual coefficients follow a process of partial adjustment over time. Convexity constraints are defined and imposed on the parameters of the average cost functions.
For each of the twelve consumer groups the preferences for leisure, savings and consumption are determined from a multilevel demand system.
Consumers maximize a CES utility function to determine their demand for leisure. Their monetary income is then allocated between consumption and saving, again by maximization of a CES function. Finally the demands for each of the consumption commodities are derived from Cobb-Douglas utility functions. Savings are entirely used for investment, as required by the general equilibrium assumptions.
Government demands for goods and services are obtained from the maximization
of a Cobb -Douglas utility function.
In the foreign sector, imported inputs are modeled as a function of domestic output, with the exception of imported energy which is treated as a policy instrument and is therefore exogenous. Net exports - exports
minus imports for final demand - are a function of domestic output prices.
Equilibrium consists in a vector of goods and factor prices for which all net excess demands are zero. Given the constant-returns-to-scale assumption used in the production submodel output prices are obtained from factor prices, the input output structure and the tax rates. A solution of the model consists then in the appropriate vector of factor prices.
The model is made dynamic with additional assumptions about the growth of the endowments of labor and capital. An exogenous growth rate of the labor force is assumed. Capital is determined from the previous
year's stock and the amount of net investment.
The model is used to simulate energy-economy interactions between 1973 and the year 2000. National income and welfare as well as consumers' and government's utility are used to assess alternative energy scenarios.
Constraints are imposed on the domestic availability of crude oil and natural gas. The results are used to obtain conclusions about the efficiency and distributional impacts of different energy policies.
The policies studied include the imposition of oil import quotas and the introduction of a tax on energy rents. The results highlight the significant cost of energy conservation policies and the limited redistributive
effectiveness of the windfall profits tax.