The Inforum International System of Models

The Inforum system of macroeconometric, dynamic, input-output models has been producing annual forecasts and analyses of public policy since 1979. The current system contains models for the United States, Canada, Mexico, Japan, Korea, China, Germany, France, United Kingdom, Italy, Spain, Austria and Belgium. Models of Denmark, Holland, Poland, Hungary, Russia, South Africa, India, and Thailand are underway, but not yet a part of the linked system.

Each of the models builds from industry detail to macroeconomic totals and has its own macroeconomic properties. The models produce all of the principal results of any aggregate model, such as GNP, the price level, the unemployment rate, and so on. In addition, they produce sectoral (product) forecasts for gross output, exports, imports, consumption, price indexes and value added. These sectoral series are internally consistent with each other and consistent with the macro results. Indeed, the macro results are, with the exception of household and government consumption, the sum of sectoral results. Thus, real GNP is the sum of final demands expressed in constant prices; nominal GNP is the sum of value added by industry; and, the GNP deflator is the ratio of the two.

Each of the models has sectoral equations for private consumption expenditures, capital investment, government purchases, imports, exports (see below for the link with the bilateral trade mode), labor compensation, return to capital, profits, etc. In each of the models, these sectoral equations are an integral part of the macroeconomic results. Hence, in the case of imports, the sum of the forecasts of the sectoral imports is the figure for total imports. The macroeconomic behavior of imports is thus derived as the sum of the behaviors of individual sectoral equations. To cite another example, a change in the rate of productivity growth in the construction sector will affect the overall growth rate of productivity and hence real GNP.

Each of the models has as a basic building block an input-output table linking the various sectors of the entire economy in a consistent manner. The table is used for the calculation of product outputs and product prices for each year of the forecast. The input-output coefficients have dynamic paths of change over time, which, in some instances, are responsive to changes in relative prices. Product outputs are determined using the familiar input-output calculation where the output of any one sector is the sum of sales to each of the other sectors and of sales to final demand. Likewise, prices are derived as the sum of the costs of intermediate goods and service inputs (including the cost of imported goods and services), and the costs of primary factors (labor, capital, etc.) per unit of real output. The individual country sectoral dimensions are shown below.

Each of the models is dynamic. That is, past levels of output, together with their pattern of change over time, will influence the level of investment and employment by industry.

Each of the country models is linked to the others bilaterally, by commodity, through trade flows and prices. The links are at both the macroeconomic and sectoral level. The macroeconomic side provides the exchange rate assumptions. All other links are at the sectoral level. Thus, steel imports in the USA influence steel exports of Japan; German auto prices affect the price of auto imports to the USA; and, USA grain prices affect Canadian exports of Grain. The model that links all of the country models is the Bilateral Trade Model BTM).

Exchange rates are exogenous. The system emphasizes the flows of goods and services at the industry level between countries together with the price impacts of such flows.

The models are linked together with a Bilateral Trade Model (BTM). BTM, as its name implies, shows bilateral trade flows between the countries in the system for some 120 commodities. The database used is Statistics Canada's World Trade Database. BTM uses country and sector specific data on prices and investment to estimate the import shares and then the importing country's imports to obtain the level of imports from each exporting country. Summing across the importers then yields the exports by country and commodity. These estimates are then used in the country models as indicators of exports. In addition, BTM gives the importing country information on its import prices by commodity.

Every six months, both macroeconomic and microeconomic model solutions are updated. In accordance, reviews of details and analysis are also performed in six-month intervals and are available upon request. Historical and forecast databases exist as part of the standard model data banks. Software for user operation of the system is available as is technical assistance by request.

The following table briefly summarizes the overall capabilities of the individual models. Documentation varies substantially between models. Two were constructed as a part of a Ph.D. thesis; some have substantial papers written concerning their properties; others have only limited documentation. All documentation can be made available upon request.

Summary of Individual Model Dimensions (sectors, categories, etc)

Country Output Consumption Investment Employment
USA 97 77 55 97
Canada 94 94 40 38
Mexico 74 12 1 74
Japan 102 85 101 102
Korea 71 29 25 17
China 59 34 52 52
Germany 58 22 58 58
France 88 88 38 36
Italy 45 40 21 41
UK 55 39 54 55
Spain 43 43 11 43
Australia 53 59 3 19
Belgium 53 61 24 44

The forecast horizon is 2020. The system can be used to study the industrial and aggregate impacts of macroeconomic developments such as changes in exchange rates, trade policy, and government policy. Some specific examples of applications of the International System include:

Examination of Customs Unions, Free Trade Areas and International Trade Issues

  • The Canadian, Mexican and USA models were used by the Canadian government (Department of External Affairs) in a study of the impacts of alternative free trade agreements between the U.S. and Canada on the Canadian economy and later a similar study was completed looking at the NAFTA accord.

  • Using detailed microeconomic studies for several industries a comprehensive and consistent study was made of the economic effects of European economic integration.

  • A study of the economic effects of China's entry into the World Trade Organization (WTO) was conducted using detailed data on tariffs and non-tariff barriers.

  • A study of the possible macroeconomic and sectoral impacts of the establishment of a free trade area for China, Japan and South Korea.

  • The impact on American international trade competitiveness of increased capital investment in the US was investigated.

  • An extremely detailed study showing the jobs required to produce exports was done for Canada, Japan, Germany, France, Italy, the United Kingdom and the European Union.

  • Our analyses of the impact of the U.S. and Japan imposing tariffs on each other's products showed that both countries could be very negatively affected. The drop in personal income in the U.S. could be so large that even U.S. autos would experience a drop in output, despite a substantial drop in imports of autos from Japan.

Specialized Studies

  • The Department of Commerce has used the USA, Canadian, and Japanese models to show the embodiment of R&D expenditures in exports, imports and domestic consumption.

  • The impact of achieving hypersonic (5-10 times the speed of sound) commercial travel ten years earlier than expected was studied in an international environment. Cases in which the U.S. alone had the capability were studied in contrast to cases in which Japan and Europe had it as well. Detailed impacts on technology in several industries were used as inputs.

  • A study of the industrial and trade impacts of alternative growth paths for the Chinese and Japanese economies was conducted. The impacts on Korea and the United States were also examined.

  • A study of the effects of changing world oil prices on the US, Japanese and European economies was done for a US manufacturer of plastic resins.

  • An analysis of the effect on the Japanese economy of allowing free trade in rice at international prices was conducted.

  • The system is used to provide the U.S. model, LIFT, with forecasts of foreign prices and demands for U.S. exports by sector.

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