Macro Environment of Business

Fair Model Project

   Use the MCM to do the following analysis on the country of your project depending on the availability of data for this country.
   If not enough data is available for your country, use the US data.
   Use graphs/tablesfor the period 1970:1-2013:4 to answer the following questions:
Recessionary Periods:
1.   From the table and graph for real GDP (GDPR), can you pick out the last recessionary period?

Inflationary Periods:
1. From the table and graph for the percentage change in the GDP deflator,PCGDPD, can you pick out the last inflationary periods? How does theimport price index, PIM, behave during these periods? How about the nominalwage rate, WA, and the real wage rate, WR?
2. Find a period of overlap between the recessionary and inflationary periods?(These overlap periods are called periods of stagflation) Can you speculateon what might have caused the stagflation?

Labor Market Variables:
1.   How did the unemployment rate, UR, behave during the recessionary andinflationary periods?
2.   Is there a tight relationship between UR and the rate of inflation, PCGDPD?
3.   How did productivity, PROD, behave during the recessionary periods?

Fiscal Policy Variables and Other Federal Government Variables:
1. Examine howthe government deficit SGP and the government debtAGhavechanged over time. What are some of the factors that led to the large rise in thedeficit?

Monetary Policy Variables and Other Financial Variables:
1. How did the bill rate, RS, behave during the recessionary periods? During theinflationary periods? What does this say about Fed behavior?

Foreign Sector Variables:
1. Examine how PIM, IM, PEX, and EX have changed over time.
2. SGP and -SR are sometimes call the“twin deficits.” Examine their relationshipover time.

Effect of Economic Policy:
1. Choose economic policy tool(s),such as government spending or tax rate, and make relevant change during the last recession.
2. Examine the effect of the above change on relevant economic variables, such as GDP and unemployment.

The Model Home Page:
http://fairmodel.econ.yale.edu/main3.htm
To solve the US Model, click:
(Solve the current version (April 26, 2013) of the model)
To solve the Multi Country Model (MCH), click:
http://fairmodel.econ.yale.edu/mch/

1. Enter a username and password for your dataset and press Enter.

You will be presented with the following main menu which gives you access to all of the
features of the model.

2. Select option 1 to set the prediction period. Set it to 1970-2015.
3. Save Changes
4. Back at the main menu, select option 8 to solve the model and examine the results
After the model is solved, you will then be presented with the output page.
5. Click Proceed
You will be presented with a page which allows you to choose what information you
want to present, and also how to display it. Let us look at the import and export rates of
Japan as an example.

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9.

Select one for all in the Graphs section to display all of the variables on one graph.
Set the period to be from 1980 to 2000.
Select Japan from the list of countries
Find Total exports in the list of variables and press Add to current list to add it to the list
of output variables. Do the same for Total imports.
10. Click on Display Output to continue.

You will be presented with a graph presenting Japan’s export (red) and import (green) levels
from 1980 to 2000.

11. To solve the assignemnt, solve the model as before and fill the output page as follows:

12. Type the codes for all of the variables you want to examine into the box, choose one
graph per variable, and display output. You will be presented with graphs of all of your
chosen variables. You can now begin answering the questions by analyzing the graphs.

The recessionary periods are visible on the graph of GDPR as small dips. Some variables follow
the business cycle. For example, the unemployment rate clearly rises during the recessionary
periods as can be seen in the graph for UR. The savings rate also seems to rise during
recessionary periods.

As can be seen above, the inflationary periods are accompanied by spikes in the GDP deflator.
Import price index sees a similar spike during these periods. No apparent change in nominal
wage rate, but slowing of real wage rate.
6

Stagflation occurs from 1974:1-1975:1 and 1980:2-1981:1

The unemployment rate decreased during the inflationary periods (green) and increased during
the recessionary periods (blue). The unemployment rate seems to be inversely related to
inflation.

Fair Model – Examining Alternate Policies
This tutorial will show you how to change an economic policy instrument/exogenous variable
and see how a country’s economy would have been affected.
As an example, we will see what would have happened if Germany had increased its
government purchase of goods by 8.0% from the year 2000 to 2005.
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7.

Log in to your Fair Model account.
Set the prediction period to 2000-2015.
Click on “Use historical errors” and set the option to use historical errors. *
Click on “Change exogenous variables”.
Click on “GE – Germany”.
Click on “GEG – Government purchases of goods and services (constant lc)”
In the field named “Multiply each of the existing values by”, type 1.08 and press enter

8. Click “Commit to changes”
9. Go back to Home and click on “Solve the model and examine the results”
10. Set up your output according to the picture below, choosing Germany as the country
and selecting Real GDP for your variable, then click on “Display Output”. Make sure to
use MCHBASE as a comparison.
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11. You will be presented with a graph as seen below displaying the effect of an increase in
government purchase of goods on real GDP.

You can adjust the steps presented above to examine changes to different variables and
countries as you desire.

* It is important to use historical errors otherwise your alternative scenario will be compared to
actual values from that period. In order for the comparison to be valid we must compare model
prediction to model prediction.

Resources
UAE:
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UAE National Bureau of Statistics

UAE Ministry of Economy
UAE Ministry of Finance
UAE Ministry of Foreign Trade
UAE Ministry of Labor
UAE Central Bank
Arab Monetary Fund
GCC

General Economics Sources
o American Economic Association
o NBER
o Online Economics Textbooks
o Resources for Economists on the Internet
o Social Science Information Gateway
o WebEc
o Economic Jokes (not guaranteed)

Global Economy, Finance, Trade and Development
o Brookings Trade Forum
o Center for Global Development
o Corsetti’s Euro webpage
o G-24 research papers
o Global Trade Negotiations Home Page
o Roubini’s Global Macroeconomic and Financial Policy Site
o Global Development Network
o Institute of Development Studies: International Finance Programme
o Kiel Institute for World Economics
o International Development Economics Associates
o Institute of International Economics
o International Economics Departments, Institutes, & Research Center
o Globalization Industrial Performance Center at MIT

Organizations/Networks Critical of Unrestrained Globalization
o Bank Information Center
o Initiative for Policy Dialogue
o Financial Markets Center
o Mobilization for Global Justice
o Public Citizen Global Trade Watch
o Third World Network
o Economic Policy Institute

Country Information
o Center for International Development at Harvard (CID)
o IMF Staff Country Reports
o Institute of Development Studies, University of Sussex
o One World
o Social Science Information Gateway
o World and Non-US Data
o World News
o Wirtschaft im Wandel
International Organizations
o Asian Development Bank
o Bank of International Settlements (BIS)
o European Union (EU)
o Inter-American Development Bank (IDB)
o International Labor Organization (ILO)
o International Monetary Fund (IMF)
o Organization for Economic Cooperation and Development (OECD)
o Trade and Development Centre (joint venture of the World Bank and the
WTO)
o United Nations Conference on Trade and Development (UNCTAD)
o United Nations Development Programme (UNDP)
o United Nations System of Organizations (UN)
o Sustainable Development Department (SD) of Food and Agriculture
Organization (FAO)
o World Bank
o World Bank. Multilateral Investment Guarantee Agency.
o World Trade Organization (WTO)
o UN Development Program
US Government Institutions
o Bureau of Labor Statistics
o Census Bureau
o Commerce Department
o EDGAR (SEC filings)
o Federal Reserve Board
o Federal Trade Commission
o Federal Web Locator
o United States Department of Labor
o Office of Management and Budget
o Treasury Department
o United States Trade Representative
Economic and other Social Science Literature and Working Papers
o Agricola
o EconLit
o JSTOR
o MathSciNet
o PAIS
o Social Sciences Abstracts

Social Sciences Citation Index

Journals/Magazines
o Foreign Policy
o Multinational Monitor
o The Globalist
Working Papers
o BibEc – Printed Working Papers in Economics
o Economics Working Paper Archive
o IMF Working Papers
o NBER Working Papers
o WoPEc – Electronic Working Papers in Economics
o CESifo Forum, Ifo Institute for Economic Research, Munich
Economic Data
o Bureau of Economic Analysis (BEA)
o Bureau of Labor Statistics (BLS)
o Center for International Development (CID) proprietary databases
o Detailed US and Canada imports by source (6-digit HS) from Industry Canada
o Economic growth data sets
o IADB Economic and Social Database (Latin America)
o International Trade Data (maintained by Jon Haveman)
o NBER Online Data
o OFFSTATS: Official Statistics on the Web
o Reports Issued by the Office of the United States Trade Representative and
Related Entities
o Statistical Data Locators
o UMICH Statistical Resources
o UNCTAD Foreign Direct Investment Database
o US Census Bureau Foreign Trade Statistics
o US Antidumping Database
o WebEc Economics Data
o World Bank Economic Growth Research (data)
o World Development Indicators Online (WDI)
o Statistical Agencies Around the World
o http://www.census.gov/main/www/stat_int.html
o EconData
o International data

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