Abstract
It is a characteristic of linked systems of national models which are linked only by the trade sector, to have a weak degree of interdependence. Fromm (1979) quotes results from the DESMOS and LINK systems to illustrate this point. Deflationary fiscal and/or monetary policy carried out in any one country, for example, will lead the level of that country’s real output to fall. Other things being equal, this implies a lower demand for imports. This is then translated via the trade linkage model into a lower demand for exports of the other countries in the system, with subsequent contractionary effects upon real output in these countries. This latter reduction feeds through the individual country models to trace out the effects on employment, prices, etc. The second round effects are, however, typically small, even for rather large initial shocks to the system.
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© 1986 Martinus Nijhoff Publishers, Dordrecht
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Murfin, A., Ormerod, P. (1986). The Sterling-Dollar Exchange Market 1973–1982: Surprises and Expectations. In: Artus, P., Guvenen, O. (eds) International Macroeconomic Modelling for Policy Decisions. Advanced Studies in Theoretical and Applied Econometrics, vol 5. Springer, Dordrecht. https://doi.org/10.1007/978-94-009-4347-6_4
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