National Income Determination Research Articles

Balbach and Brunner: A Missing Stop on the Road from Warburton to Friedman-Meiselman and St. Louis

“The Relative Stability of Monetary Velocity and the Investment Multiplier in the United States, 1897–1958,” by Milton Friedman and David Meiselman (1963), typically is recognized as the original study that used a reduced-form equation to evaluate whether autonomous expenditures or the quantity of money was the dominant influence on aggregate spending. It also provided the foundation for the better-known St. Louis equation that followed. Missing from this evolution, however, are important precedents by Karl Brunner and Anatol Balbach that also employed a reduced-form framework to offer evidence on the same debate between the Keynesian expenditure theory and the quantity theory of money. Moreover, these authors also investigated whether the demand-for-money function was stable and inversely related to an interest rate, properties necessary in their reasoning before any more general model of national income determination could be developed. With this foundation, Balbach, in his 1963 PhD dissertation, then derived a reduced-form expression for personal income from an explicit theoretical model and, in its estimation, anticipated and addressed some of the empirical criticisms later directed at the work by Friedman and Meiselman and the early versions of the St. Louis equation. Taken together, the theoretical and empirical work reported in Balbach's dissertation and in a 1959 article by Brunner and Balbach suggest these papers are clear antecedents of later reduced-form expressions and should be recognized as such.

An optimization technique for national income determination model with stability analysis of differential equation in discrete and continuous process under the uncertain environment

The paper represents a variation of the national income determination model with discrete and continuous process in fuzzy environment, a significant implication in economics planning, by means of fuzzy assumptions. This model is re-recognized and deliberated with fuzzy numbers to estimate its uncertain parameters whose values are not precisely known. Exhibition of imprecise solutions of the concerned model is carried out by using the proposed two methods: generalized Hukuhara difference and generalized Hukuhara derivative (gH-derivative) approaches. Moreover, the stability analysis of the model in two different systems in fuzzy environment is illustrated. Additionally, different illustrative examples for optimization of national income determination model are undertaken with the constructive graph and table for convenience for clarity of the projected approaches.

Institutions and Cultural Heterogeneity as Determinants of National Income: A Random‐coefficients Stochastic Frontier Model

AbstractPrevious research on total factor productivity (TFP) shows that cross‐country differences in income cannot be fully explained by stocks of capital (K), labor (L) and human capital (E). In addition, the omission of major production inputs or the use of proxies to estimate unobservable inputs leads to biased estimation results. This study addresses the above issues by employing a novel econometric approach and provides empirical evidence that a fixed production input, and therefore a country's income, is positively correlated with the existence of British‐style institutions and negatively correlated with cultural heterogeneity and Spanish‐style institutions. Our methodology is twofold. First, using data for 62 countries from 1980 to 2004, we regressed a random‐coefficients stochastic production frontier that allows estimating a fixed unobservable production input without using proxies. Second, the estimated fixed production input is shown to be related to colonial institutions and cultural heterogeneity by means of ordinary least squares and feasible generalized least squares regressions.

An Analysis of Export Led Growth Hypothesis: Cointegration and Causality Evidence from Sri Lanka

This study examines the export led growth (ELG) hypothesis for Sri Lanka on the basis of annual data for the period 1981 to 2012, drawn from the World Bank (WDI) data bank. The period is selected on the grounds that during the period the Sri Lankan economy has been liberalized and in a liberalized economy it is expected that the trade sector plays a key role in national income determination. The hypothesis is tested with simple GDP and GDP net of exports as proposed by Sharma and Panagiotidis (2005). Johansen cointegration (1988) test is used to check the long run association which rejected the hypothesis of any long run association between export and GDP and GDP net of exports. Same results are also revealed by Granger causality (1969) and existence of short run relationship between exports and GDP and GDP net of exports is also rejected by VAR. However, Granger cause between imports and investment is noticed which run from imports to investment and from investment to imports respectively at 5% and 10% level of significance. Unidirectional causality is also recorded, at 05% level of significance, between investment and unemployment which run from investment to unemployment. However, no empirical evidence in support of ELG hypothesis for Sri Lanka is found.

Note on a model of Chinese national income determination

A macroeconomic model of Chow (1985) explaining aggregate consumption by the permanent income hypothesis of Robert Hall and aggregate investment by the accelerations principle was found to fit Chinese annual data from 1952 to 1982 well. This note shows that the same model can successfully explain Chinese annual data from 1978 to 2006.

Population Ageing and Intergenerational Conflict: A Post‐Keynesian View

The author reexamines the relationships among demographic aging, the dependency burden, and intergenerational conflict from a post-Keynesian perspective, in which unemployment and excess capacity are normal to the functioning of capitalist economies, and resources are not generally fully utilized. He "argues that the Keynesian process of national income determination precludes any immediate relationship between population ageing and the 'burden' imposed on income recipients. Below full employment, a rising dependency ratio is not guaranteed to reduce the expenditure share of income recipients or raise their tax rates. An exclusive emphasis on intergenerational conflict can give a misleading impression of the consequences of population ageing." The focus is on developed countries.

P ∗ type models: Evaluation and forecasts

This paper critically evaluates the Federal Reserve's P ∗ model of inflation, and develops a model of national income determination implicit in the P ∗ formulation. We use this model to forecast the future paths of key macroeconomic variables and investigate its behavior under a variety of deterministic monetary policy rules. These forecasts and policy simulations suggest a dynamic economic behavior inconsistent with stylized facts, and lead us to question the underlying structure of the P ∗ formulation.

A Model of Chinese National Income Determination

A model consisting of a consumption function and an investment function is used to explain Chinese annual data in constant prices from 1953 to 1982. The data confirm Robert Hall's version of the permanent income hypothesis and the accelerations principle. Deviations of the observations from predictions of this model are attributed to political factors, including the Great Leap Forward in 195962, the Cultural Revolution in 1967-68, and the special government policies in 1978 and 1981.

MODELLING THE DEVELOPING ECONOMY: THE PHILIPPINES

MODELLING THE DEVELOPING ECONOMY: THE PHILIPPINES

Macroeconomic Theory and Policy.

I. AN INTRODUCTION TO MACROECONOMICS. 1. Actual and Potential GNP: Fluctuations and Growth. 2. A Review of the National Income and Product Accounts. 3. Introduction to Income Determination: Multiplier. II. NATIONAL INCOME DETERMINATION: THE STATIC EQUILIBRIUM MODEL. 4. Demand-Side Equilibrium: Income and the Interest Rate. 5. An Introduction to Monetary and Fiscal Policy. 6. Demand and Supply in the Labor Market. 7. Supply-Side Equilibrium: Output and the Price Level. 8. Equilibrium in the Static Model. 9. Monetary, Fiscal, and Incomes Policy. 10. Search, Wage Rigidity, and Unemployment. 11. Rational Expectations and Demand Policy. III. SECTORAL DEMAND FUNCTIONS AND EXTENSIONS OF THE STATIC MODEL. 12. Consumption and Consumer Expenditure. 13. Investment Demand. 14. Demand for Money. 15. Supply of Money. 16. Monetary and Fiscal Policy in the Extended Model. 17. Foreign Sector and the Balance of Payments. 18. Macroeconomics When Markets Do Not Clear. IV. MEDIUM-TERM DYNAMICS: BETWEEN STATIC EQUILIBRIUM AND LONG-RUN GROWTH. 19. Inflation, Productivity, and Income Distribution. 20. Inflation and Unemployment: Phillips Curve. 21. Introduction to Stock-Adjustment Dynamics. 22. Trend Growth in the Static Model. V. LONG-RUN GROWTH WITH FULL EMPLOYMENT. 23. Introduction to Growth Models. 24. Basic Neoclassical Growth Model. 25. Basic Model Extended: Varying Saving Assumptions. 26. Golden Rule and an Introduction to Optimal Growth Models. 27. Medium-Term Growth and The Measure of Our Ignorance.

Fiscal Policy, the Quantity of Money, and the Stock Market

W HILE most economists agree today that monetary policy has some importance in controlling the economy, there is little agreement as to how important it is, or which monetary varia.ble is the key one. Pre-Keynesian economists reasoned that there was a predictable relationship between the money supply and GNP. If the quantity of money doubled, for example, for any reason, the interest rate would fall initially. reduced interest rate would stimulate borrowing, investment and consumption while the incentive to save would be reduced. Total demand. for goods and services would thus be increased and with a constant productive capacity, prices would have to rise. Thus, once prices begin to rise, the interest rate would rise again in response to the corresponding fall in the real money supply. Prices would rise. until they were twice their original level, thus reducing purchasing power of the money supply to its initial value and equilibrium would be restored. interest rate would also return to its original level, where saving and investment are equal. Economists first became disillusioned with this classical monetary theory during the depression for several good reasons. For one thing, while the money supply about doubled between 1933 and 1940, prices increased only slightly and economic activity remained in the doldrums until the vast increase in government war spending finally pulled the country out of the depression. In the quarter century since World War II, the opposite phenomenon occurred-the economy expanded at more than double the rate of money supply expansion. Most economists concluded that, contrary to earlier thinking, the relationship between the money supply and GNP was very loose (see Chart I). By the late 1940's, the economic world was ready to accept the new ideas embodied in John Maynard Keynes' book The General Theory of Employment, Interest and Money. Keynes put great emphasis. on government spending and business investment as determinants of national income, while money supply is considered by Keynesians to be only one of the many factors which influences the economy.

Boisguilbert: A Neglected Precursor of Aggregate Demand Theorists

I. Introduction, 401. — II. The man, his times, and his works, 402. — III. Money and wealth, 404. — IV. Determinants of national income, 405. — V. Recurring crises and secular decline, 408. — VI. Boisguilbert's program of reform, 411. — VII. Conclusion, 413.