A structural policy model for the Federal Republic of Germany

Abstract

In this paper we present a structural policy model of the comparative- static general equilibrium type. Our model for the Federal Republic of Germany closely resembles the Australian ORANI model (Dixon et al., 1982) which in turn has its origin in Johansen's pioneering work for Norway (Johansen, 1960). An attractive trademark of Johansen-models is that they are written as a set of structural equations which are linear in all growth rates. Exogenous and endogenous variables can be exchanged easily and solutions require no more than simple matrix operations. This makes for a highly flexible instrument of policy analysis. A consequence of linearisation, of course, is that model solutions provide only for linear approximations. However, a method has been developed to correct for the linearisation error in case of large policy changes.