Regional Capacity Building Workshop Formulating National Policies - PowerPoint PPT Presentation

Regional Capacity Building Workshop Formulating National Policies and Strategies in Preparation for Graduation from the LDC Category : Macroeconomic Modelling for SDGs in Asia and the Pacific Santi Chaisrisawatsuk 16 November 2017 Thimpu, Bhutan

Outline • Introduction • Fair’s Model • Key modifications • Macroeconomic model • Preliminary results for discussions • SDG variables integration

Introduction • Changing economic dynamic and environments • Growing important of service sector • Different mechanism fostering economic growth • Economic development process • Emphasis place on growth versus other economic objectives to improve living standard such as inequality and environmental concerns • The role of international economics • An increasing role of international economic activities and economic integration • Possible linkages of SDG variables in macroeconomic modeling

Fair’s Model (Mini version) • Traditional macroeconomic model consists of a large number of structural equations (behavior + identities equations) • Completed Fair’s model (30 behavior equations and 158 identities) • Mini Fair’s model covers fundamental economic variables in aggregate without going too much into more sectoral details • Easier to integrate SDG variables into the model • Fair’s mini version model (10 behavior equations and 19 identities)

Key Modifications • Total wealth variable is approximated by Gross Domestic Saving – data on total wealth is not available and wealth is mostly held in the form of saving in most developing economy (data is available in World development Indicators by World Bank) • Data on financial wealth and housing wealth are not available so they are not included in the model • Integration of durable and nondurable consumption to use total final consumption expenditure (data is available in World development Indicators by World Bank) • Consumption in service still remains in the model (data is available in World development Indicators by World Bank)

Key Modifications • Population structure is adjust according to the World Bank base (Fair’s 26-55, 56-65, 66+) (WB’s 20-49, 50-59, 60+) (Data is available in World development Indicators by World Bank) • Depreciation rate is exogenous variable and assumed to be fixed at 6% • Capital gain is proxied by total tax on income capital gains and profits – tax on goods and services • Physical depreciation rate of capital stock assumed to be fixed at 10% (Data available at NESDB Thailand) • Export and Government Expenditure are exogenous variable (Data is available in World development Indicators by World Bank)

Key Modifications • Residential investment data is not available (not include in the model) • Import equation remains as in Fair’s model (Data is available in World development Indicators by World Bank) • Housing stock and durable good stock are not available (not include in the model) • Inventory investment uses change in inventory variable from the World Bank database • Capital stock variable use data from the World Bank database • GDP deflator in the model use data from the World Bank database

Key Modifications • Mortgage rate is replaced by lending rate • 3-month T-bill rate is replaced by saving rate • Financial saving of household sector replaced by Gross Domestic Saving • Tax and Tax ratio is available in the World Bank database • Stock of inventory is proxy by change in inventory variable • Calculation of Minimum Capital required based on change in economic structure instead of peak to peak approach • Calculated Potential Output base on time series method

Macroeconomic Model • 7 behavior equations and 10 identities • The Behavior Equation: Final Goods Consumption, Service Consumption, Change in capital stocks, GDP potential, Import, Price, and Saving Rate • The Identities Equation : Nominal GDP, Nominal disposable Income, Growth of disposable Income, Nominal Depreciation, Nominal Tax, Nominal Saving, Real Disposable Income, Minimum Capital, Output Gap, Inflation, and GDP Growth

A Case of Thailand: A Work in Progress • The initial model is tested by using Thailand data set for any possible problems • Annual data are used from 1980-2015 according to the availability of the data set for Thailand (and later for CLM) in the World Bank database • All 7 behavior equations are estimated with some reliability of the results • Later, some of the SDG Variables will be introduced to the model

Preliminary results for discussions: Final Goods Consumption equation Dependent Variable : LNCFPOP Included observations : 37 after adjustments Std . Error t - Statistic Prob . Variable Coefficient 1 . 193252 0 . 862716 1 . 383135 0 . 1772 C 8 . 96E - 11 3 . 26E - 09 0 . 027465 0 . 9783 AG1 - 2 . 58E - 08 1 . 31E - 08 - 1 . 975743 0 . 0578 AG2 6 . 29E - 08 2 . 93E - 08 2 . 148333 0 . 0402 AG3 LNCFPOP (- 1 ) 0 . 846774 0 . 128953 6 . 566507 0 . 0000 D ( LOG ( YD / POP )) 0 . 453660 0 . 162106 2 . 798536 0 . 0090 - 0 . 005775 0 . 002306 - 2 . 504484 0 . 0181 RS D ( LNAAPOP (- 1 )) 0 . 093114 0 . 040756 2 . 284659 0 . 0298 R - squared 0 . 994292 7 . 959909 Mean dependent var Adjusted R - squared 0 . 992915 S . D . dependent var 0 . 312644 S . E . of regression 0 . 026317 - 4 . 248424 Akaike info criterion 0 . 020084 - 3 . 900118 Sum squared resid Schwarz criterion 86 . 59585 Hannan - Quinn criter . - 4 . 125630 Log likelihood F - statistic 721 . 7068 Durbin - Watson stat 1 . 698701 Prob ( F - statistic ) 0 . 000000

Preliminary results for discussions: Service Consumption equation Dependent Variable : DLNCSPOP Included observations : 37 after adjustments Std . Error t - Statistic Prob . Variable Coefficient 0 . 086288 0 . 034128 2 . 528362 0 . 0172 C - 2 . 56E - 09 1 . 15E - 09 - 2 . 220857 0 . 0343 AG1 - 3 . 05E - 10 7 . 05E - 09 - 0 . 043279 0 . 9658 AG2 7 . 42E - 09 1 . 49E - 08 0 . 499775 0 . 6210 AG3 DLNCSPOP (- 1 ) 0 . 229247 0 . 079341 2 . 889376 0 . 0072 D ( LOG ( YD / POP )) 0 . 781907 0 . 119986 6 . 516673 0 . 0000 - 0 . 002758 0 . 001168 - 2 . 361530 0 . 0251 RS 0 . 014676 0 . 034480 0 . 425649 0 . 6735 DLNAAPOP R - squared 0 . 862765 0 . 028327 Mean dependent var Adjusted R - squared 0 . 829640 S . D . dependent var 0 . 035523 S . E . of regression 0 . 014662 - 5 . 418316 Akaike info criterion 0 . 006234 - 5 . 070009 Sum squared resid Schwarz criterion 108 . 2388 Hannan - Quinn criter . - 5 . 295522 Log likelihood F - statistic 26 . 04524 Durbin - Watson stat 2 . 556321 Prob ( F - statistic ) 0 . 000000

Preliminary results for discussions: Import equation Dependent Variable : LNIMPOP Included observations : 38 after adjustments Std . Error t - Statistic Prob . Variable Coefficient - 7 . 368308 1 . 794379 - 4 . 106326 0 . 0002 C LNIMPOP (- 1 ) 0 . 309045 0 . 138081 2 . 238138 0 . 0319 LOG (( CS + CF )/ POP ) 1 . 470921 0 . 322554 4 . 560234 0 . 0001 LNPPIM (- 1 ) 0 . 072843 0 . 132743 0 . 548751 0 . 5868 R - squared 0 . 979132 7 . 458130 Mean dependent var Adjusted R - squared 0 . 977291 S . D . dependent var 0 . 694322 S . E . of regression 0 . 104632 - 1 . 577435 Akaike info criterion 0 . 372227 - 1 . 405057 Sum squared resid Schwarz criterion 33 . 97126 Hannan - Quinn criter . - 1 . 516104 Log likelihood F - statistic 531 . 7585 Durbin - Watson stat 1 . 060337 Prob ( F - statistic ) 0 . 000000

Preliminary results for discussions: Change in Capital Stock equation Dependent Variable : D ( LNKK ) Included observations : 37 after adjustments Std . Error t - Statistic Prob . Variable Coefficient 0 . 100636 0 . 045852 2 . 194780 0 . 0353 C LNKKKKMIN (- 1 ) - 0 . 008441 0 . 004888 - 1 . 726974 0 . 0935 D ( LNKK (- 1 )) 0 . 260735 0 . 142678 1 . 827438 0 . 0767 D ( LOG ( Y (- 1 ))) 0 . 516941 0 . 182882 2 . 826632 0 . 0079 R - squared 0 . 511201 0 . 096674 Mean dependent var Adjusted R - squared 0 . 466765 S . D . dependent var 0 . 050721 S . E . of regression 0 . 037038 - 3 . 651924 Akaike info criterion 0 . 045271 - 3 . 477770 Sum squared resid Schwarz criterion 71 . 56059 Hannan - Quinn criter . - 3 . 590526 Log likelihood F - statistic 11 . 50414 Durbin - Watson stat 2 . 291668 Prob ( F - statistic ) 0 . 000026

Preliminary results for discussions: Price equation Dependent Variable : LOG ( P ) Included observations : 38 after adjustments Std . Error t - Statistic Prob . Variable Coefficient 0 . 250697 0 . 212861 1 . 177752 0 . 2473 C 0 . 001042 0 . 002340 0 . 445403 0 . 6589 T LOG ( P (- 1 )) 0 . 924606 0 . 063271 14 . 61335 0 . 0000 LOG ( PIM ) 0 . 022740 0 . 038470 0 . 591095 0 . 5585 - 5 . 49E - 13 3 . 59E - 13 - 1 . 527019 0 . 1363 GAP R - squared 0 . 997848 4 . 386535 Mean dependent var Adjusted R - squared 0 . 997588 S . D . dependent var 0 . 428096 S . E . of regression 0 . 021026 - 4 . 764001 Akaike info criterion 0 . 014590 - 4 . 548529 Sum squared resid Schwarz criterion 95 . 51601 Hannan - Quinn criter . - 4 . 687337 Log likelihood F - statistic 3826 . 146 Durbin - Watson stat 1 . 680867 Prob ( F - statistic ) 0 . 000000