SMILE: یک الگوی کلان اقتصاد سنجی کوچک از اقتصاد فرانسه

This paper describes SMILE, a small quarterly macro-econometric model of the French economy. The model mingles short-run Keynesian dynamics with a consistent, partly estimated, neo-classical supply side. A well-defined steady-state growth path is fully derived analytically. Standard simulations display plausible short to long-run responses to both demand and supply shocks. The model is helpful in a variety of policy analysis. To illustrate, we use our framework, first to gauge the role of factor costs in the evolution of French structural unemployment, then to evaluate relevant weights for building a Monetary Conditions Index.

MANEGE (Modele Agrege National pour l'Etude Generale de l'Economie) is a simple quarterly macro-econometric model of the French economy designed for policy analysis and forecasting. Building on common views over the working of the economy, it considers a one-good open economy with short-run Keynesian dynamics and a neo-classical steady state specification driven by supply-side determinants. Error correction models on French national accounts data are estimated over the last two decades to deliver key behavioral parameters and adjustment dynamics. Overall simulations of the model display plausible short to long-run responses to standard supply and demand shocks and the model has already been used in a number of policy applications. Our work aims at filling a relative gap in the French modeling tradition. The heavily-centralized French modeling industry has tended to focus on the construction of very large disaggregated models involving a host of subtle mechanisms and technical assumptions (e.g. the METRIC model at the Ministry of Finance). Despite a move toward smaller-scale models and efforts to disseminate the knowledge in the 1990s (see, in particular, the special issue of Economie et Prévision, 1998), models as a rule remain hard to comprehend outside the restricted teams of day-to-day practitioners and model-users themselves often find it cumbersome to work with very large systems. By contrast a relatively compact model providing a core of behavioral equations allows both for realism and a flexible approach to policy analysis. With a dozen econometric equations and approximately twice as more technical and accounting relationships, SMILE provides this kind of synthetic yet pragmatic tool to handle a variety of practical model-based analyses.1 A critical ingredient of SMILE is a well specified and partly estimated long-run supply block. Firms decisions on prices and factor demands (labor and capital) are derived consistently from profit maximization, assuming a monopolistic competition framework, constant returns to scale with a CES technology, and the ‘right to manage’ hypothesis. We impose the relevant restrictions on the long-run coefficients in the price, employment and capital equations. In addition, the wage equation describes the outcome of a bargaining process whereby unemployment adversely affects the level of real wages. With this framework price setting by firms and wage setting by bargainers jointly determine a single rate of equilibrium unemployment. The latter is shown to depend on the tax burden, the real cost of capital and the real exchange rate. It dictates both the threshold under which inflationary pressures stem from the labor market, and the rate at which actual unemployment ultimately stabilizes in overall simulations. The demand side of the model is fairly traditional, with households spending driven by real disposable income, interest rates and inflation. Trade volumes depend on demand as well as relative prices and capacity utilization. Production is demand-determined, which, due to significant inflation inertia and adjustment costs, entails a short-run trade-off between inflation and unemployment. Adjustment between supply and demand is secured in the long-run by the impact of goods and labor markets pressures on wage and prices as well as by the feedback effects of higher prices on private spending and net exports. Overall, simulations indicate that full crowding out of demand shocks occur in up to 5 years. Convergence to the new equilibrium may, however, take a longer time, typically 10–20 years, notably because of the slow adjustment of the capital stock. We derive analytically the steady-state solution of the log-linearized version of the model and show the effects of exogenous technological and policy assumptions on endogenous variables. Notwithstanding these standard features, we have taken a number of shortcuts relative to current modeling practice. In particular, we retain a backward looking setting and include lagged terms to proxy for expected variables, e.g. in wage and price equations. Consistently with this approach, we treat the interest rates and the nominal exchange rate as exogenous variables shaped by policy decisions and off-model developments. We do not include a monetary and financial block and limit the description of the public sector to a few expenditure and revenue categories. As a rule we also abstract from modeling stocks-flows interactions, thereby potentially missing important feedback effects, though the model can be run with an additional public sustainability constraint with the deficit ratio as target. The rest of this paper presents first SMILE's main features, then its properties in standard simulations and finally a few policy applications. Section 2 introduces the long-run supply-side specification and the corresponding dynamic equations. Section 3 briefly describes demand behaviors. In Section 4 we use an aggregate supply/aggregate demand framework to derive the full-model long-run solution. Section 5 examines SMILE's properties in standard simulations by reporting the effects of a demand shock and a supply shock. Finally, two illustrative policy applications are discussed in Section 6. Section 7 concludes.

In this paper we described the main features of SMILE, a small quarterly macro-econometric model of the French economy. Particular attention has been paid to the specification of a consistent supply-side block which is partly imposed, partly estimated. The model exhibits a number of desirable properties. Sensible elasticities are obtained for key behavioral parameters and adjustment dynamics. Full model simulations display plausible responses to demand and supply shocks with gradual convergence toward a well-defined long-run equilibrium, which we fully characterize in an aggregate supply/aggregate demand framework. The model can serve as a benchmark in a variety of contexts. First it gives orders of magnitude for macro-economic behaviors recurrently referred to in forecasting processes and counterfactual reasoning. Then it helps analyze the domestic effects of exogenous shocks, e.g. foreign developments, monetary and fiscal moves or technology shocks. The reduced size of the model has some advantages here. It permits a quick understanding of the results, facilitates sensitivity analyses and allows one to rapidly modify mechanisms at the margin when judged necessary. Our recent experience using SMILE suggests that this kind of tool is very efficient in shaping the policy debate, by setting a frame of reference with clearly identified and easily adjustable hypotheses. It is also useful in model comparison exercises, especially for cross-checking the properties of larger macro-models. Correlative to its simplicity however, the model presents a number of limitations. We implicitly assume adaptive expectations to prevail and make no attempt at modeling forward looking behaviors. We also largely abstract from feedback of stocks over flows, e.g. in the form of wealth effects. Finally, our representation of the supply-side remains highly aggregate. We neglect, in particular, potential heterogeneity among the producers and, perhaps more importantly, segmentation of the labor market between distinct levels of skills. As various categories of workers seem to exhibit strong behavioral differences, this shortcut could indeed prove misleading when analyzing the supply-side effects of specific shocks, such as tax measures targeted on low-skilled workers or job-rich producing sectors.