Structural Change in Macroeconomic Models : Theory and Estimation

This book grew out of a 'Doctorat D'Etat' thesis presented at the University of Dijon-Institut Mathematique Economiques (lME). It aims to show that quantity rationing theory provides the means of improving macroeconometric modelling in the study of struc­ tural changes. The empirical results presented in the last chapter (concerning Portuguese economy) and in the last Appendix (con­ cerning the French economy), although preliminary, suggested that the effort is rewarding and should be continued. My debts are many. An important part of the research work was accomplished during my visit to the Institut National de la Statistique et des Etudes Economiques (lNSEE, Paris), where I have beneficted from stimulating discussions (particularly with P. Villa) and infor­ matical support. I have also received comments and suggestions from R. Quandt, J.-J. Laffont, P. Kooiman and P.-Y. Henin. I am specially indebted to P. Balestra for encouraging and valuable discussions, particularly in the field of econometric methods. My thanks go also to an anonymous referee. His constructive criticism and suggestions resulted in a number of improvements to an earlier version of this book. I cannot forget my friend A. Costa from BP A (Porto) who has helped me in the preparation of this work. Last but not least, I would like to thank my wife for her encouragement and patience throughout these years. Of course, I am the only one responsible for any remaining errors.

1. Macroeconometric Models with Quantity Rationing.- 1.1. Non-Walrasian Economic Concepts.- 1.1.1. Institutional framework: the rationing scheme.- 1.1.2. Perceived and expected constraints.- 1.1.3. Effective demand and notional demand. The spill-over effects.- 1.1.4. Equilibrium with rationing and the formalisation in terms of equilibrium.- 1.2. A Reference Macroeconomic Model.- 1.2.1. The general framework.- 1.2.1.1. The accounting framework.- 1.2.1.2. The assumptions about rationing.- 1.2.2. The microeconomic foundations.- 1.2.2.1. Households’ behaviour.- • Derivation of the utility function UH.- • Consumption and labour supply functions.- • An example.- • A graphical illustration.- 1.2.2.2. Firms’ behaviour.- 1.2.3. The complete model.- 1.2.3.1. The determination of production and employment.- 1.2.3.2. The model’s answer to exogenous shocks and the importance of the typology of regimes.- 1.3. A Theoretical Framework for the Study of Structural Changes.- 1.4. The Problems in Specifying a Macroeconometric Model with Quantity Rationing.- 1.4.1. The rationing scheme in the labour market.- 1.4.2. The specification of spill-over effects.- 1.4.3. The exiguity of the accounting framework.- 1.5. A Survey of the Macroeconometric Models with Quantity Rationing.- Conclusion.- Notes.- 2: The Suggested Model.- 2.1. General Structure and Overview.- 2.1.1. The assumptions regarding the behaviour of agents.- 2.1.2. The determination of production and employment.- 2.1.3. The interpretation scheme and the regime typology.- 2.1.4. The fundamental role of production function.- 2.2. The Specfication of the Production Function.- 2.2.1. The choice of the specification.- 2.2.2. The specification adopted.- 2.2.2.1. Formalization and meaning of the variables.- 2.2.2.2. Obsolescence: The scrapping condition.- 2.2.3. The functioning of the production function in the Keynesian regime case.- 2.3. The Specification of the Complete Model.- 2.3.1. Block 1—Demand.- 2.3.2. Block 2—Production capacity.- 2.3.3. Block 3—Labour supply.- 2.3.4. Block 4—Effective production and employment.- 2.4. Structural Change and External Disequilibria.- 2.4.1. Structural change.- 2.4.2. External disequilibria.- Conclusion.- Notes.- 3. Econometric Study of Models with Unknown Points of Structural Change.- 3.1. A Survey of the Estimation Techniques in the Case of Two-regime Regression Models.- 3.1.1. The general formulation of switching regression models (SRM) and the adopted notation.- 3.1.2. The SRM typology.- 3.1.2.1. SRM with stochastic assignment.- • The log-likelihood function (L).- • The direct maximisation of L not being advisable.- • leads to the utilisation of other approaches.- 3.1.2.2. SRM with deterministic assignment.- • The structural change tests in a particularly interesting case.- • The general case.- 3.1.2.3. SRM with mixed assignment.- 3.1.3. Application to the estimation of quantity rationing models (QRM).- 3.1.3.1. QRM with stochastic assignment.- • A complex liklihood function.- • which is not appropriate for optimisation methods.- 3.1.3.2. QRM with deterministic assignment.- • A non-dijferentiable likelihood function.- • … leads, in general, to the utilisation of approximations.- 3.1.3.3. Some considerations about the choice of the stochastic specification in a macroeconometric rationing model.- 3.2. The Estimation Method Suggested.- 3.2.1. The complete model.- 3.2.2. The estimation difficulties.- 3.2.2.1. The problem of endogenous variables not statistically observed.- 3.2.2.2. The existence of the min operator.- 3.2.2.3.The non-derivability of the production function.- 3.2.3. The estimation procedure.- 3.2.4. The justification of the estimation method.- 3.2.4.1. Consistent estimators.- 3.2.4.2. An estimation of Clay-Clay model without restrictive assumptions.- • The current estimations of the Clay-Clay model.- • Comparative analysis.- Conclusion.- Notes.- 4. Empirical Application: A Study of the Economic Consequences of the Portuguese Revolution of 1974.- 4.1. The Data and the Problem Formulation.- 4.1.1.The data.- 4.1.1.1. The scope of the study.- 4.1.1.2. The methodology used in the construction of the series.- 4.1.2. The definition of the problem.- 4.1.2.1. A very brief presentation of the Portuguese economy before 1974.- 4.1.2.2. A combination of shocks.- 4.2. The Results.- 4.2.1. Presentation of the results.- 4.2.1.1. The bottlenecks in economic activity.- 4.2.1.2. External disequilibria.- 4.2.2. The robustness of the results.- Conclusion.- Notes.- General Conclusion.- Appendices.- Appendix 1. Glossary of Variables and Main Parameters.- Appendix 2. Computation of Analytical Expressions for the First Partial Derivatives of ?.- Appendix 3. Choice of the Minimum for PS as Optimisation Criterion.- Appendix 4. Results.- Appendix 5. Statistical Data and Their Sources.- Appendix 6. Estimation of the Model using French Data.