Parameterization of applied general equilibrium models with flexible trade specifications based on the Armington, Krugman, and Melitz models

This paper explains how the Armington-Krugman-Melitz supermodel developed by Dixon and Rimmer can be parameterized, and demonstrates that only two kinds of additional information are required in order to extend a standard trade model to include Melitz-type monopolistic competition and heterogeneous firms. Further, it is shown how specifying too much additional information leads to violations of the model constraints, necessitating adjustment and reconciliation of the data. Once a Melitz-type model is parameterized, a Krugman-type model can also be parameterized using the calibrated values in the Melitz-type model without any additional data. Sample code for the General Algebraic Modeling System (GAMS) has also been prepared to promote the innovative supermodel in the AGE community.

Inter-industry analysis and monetary policy evaluations in the Korean flow of funds accounts

This study mainly aims to provide an inter-industry analysis through the subdivision of various industries in flow of funds (FOF) accounts. Combined with the Financial Statement Analysis data from 2004 and 2005, the Korean FOF accounts are reconstructed to form "from-whom-to-whom" basis FOF tables, which are composed of 115 institutional sectors and correspond to tables and techniques of input–output (I–O) analysis. First, power of dispersion indices are obtained by applying the I–O analysis method. Most service and IT industries, construction, and light industries in manufacturing are included in the first quadrant group, whereas heavy and chemical industries are placed in the fourth quadrant since their power indices in the asset-oriented system are comparatively smaller than those of other institutional sectors. Second, investments and savings, which are induced by the central bank, are calculated for monetary policy evaluations. Industries are bifurcated into two groups to compare their features. The first group refers to industries whose power of dispersion in the asset-oriented system is greater than 1, whereas the second group indicates that their index is less than 1. We found that the net induced investments (NII)–total liabilities ratios of the first group show levels half those of the second group since the former's induced savings are obviously greater than the latter.

Neutrality in the choice of number of firms or level of fixed costs in calibrating an Armington-Krugman-Melitz encompassing module for applied general equilibrium models

This paper shows how an Armington-Krugman-Melitz encompassing module based on Dixon and Rimmer (2012) can be calibrated, and clarifies the choice of initial levels for two kinds of number of firms, or parameter values for two kinds of fixed costs, that enter a Melitz-type specification can be set freely to any preferred value, just as the cases we derive quantities from given value data assuming some of the initial prices to be unity. In consequence, only one kind of additional information, which is on the shape parameter related to productivity, just is required in order to incorporate Melitz-type monopolistic competition and heterogeneous firms into a standard applied general equilibrium model. To be a Krugman-type, nothing is needed. This enables model builders in applied economics to fully enjoy the featured properties of the theoretical models invented by Krugman (1980) and Melitz (2003) in practical policy simulations at low cost.

Behavioral characteristics of applied general equilibrium models with an Armington-Krugman-Melitz encompassing module

This paper explore how simulation results change with different choice of trade specification, and the strength of preference for traded variety by economic agent differs, utilizing two types of three-region, three-sector AGE model that includes the Armington-Krugman-Melitz Encompassing module based on Dixon and Rimmer (2012). Simulation experiments reveal that: (1) the Melitz-type specification does not always enhance effectiveness of a certain policy change more than the one obtained with the Krugman-type, especially when economic agents' preference for traded variety is not so strong; (2) there are likely to be points where the volumes of effects obtained with the Melitz-type exceed the ones with the Krugman-type; and (3) the preference of the producers, those who are in the sectors that exhibit increasing returns to scale, for traded variety might be the engine of explosive effects as suggested by Fujita, et al. (2000).

Monetary and Exchange Rate Policy in Malaysia before the Asian Crisis

This paper provides a case study to characterize the monetary policy regime in Malaysia, from a medium- and long-term perspective. Specifically, we ask how the central bank of Malaysia, Bank Negara Malaysia (BNM), has structured its monetary policy regime, and how it has conducted monetary and exchange rate policy under the regime. By conducting three empirical analyses, we characterize the monetary and exchange rate policy regime in Malaysia by three intermediate solutions on three vectors: the degree of autonomy in monetary policy, the degree of variability of the exchange rate, and the degree of capital mobility.