1) Maintenance of the HERMES models : update of the data files and re-estimation of the model.
2) Enhancement of the HERMES models : introduction of a financial block and supply effects.
3) Participation in the European HERMES Projection (Club HERMES).
4) Energy and environment simulations : impact of environmental policies (energy savings investments). Application for : UK, The NL, BE, DE, IE.
The research project consists of sundry activities in connection with the HERMES models of United Kingdom, the Netherlands, Belgium, Ireland and Denmark :
1) Maintenance and improvement of the various HERMES models : upkeep of data bases with the latest available information, re-estimation and correction of the models on the basis of the new data introduced.
2) Introduction of a single monetary and financial block with accounting and behaviourial relations aimed at rendering the interest rates and exchange rates endogenous variable and incorporating the effects on the rest of the economy. The financial models will have important feedback on the real sector of the economy through the interest rate, the cost of capital, the supply of credits for investments and through the relations with the exchange rate. Study of the effect of financial variables on the existing models properties.
3) Further analysis and evaluation of the supply mechanisms already present in the HERMES models : generalisation of a profitability-depending investment function, influence of the capacity utilization rate in the exports and imports equations , general supply effects as defined in the "Internal market study" test of experimental methods (Halliwell, Artus)
4) Participation in a Medium-term European economic projections, to be published in 1990. This will include contributions to discussion of assumptions for exogenous variables, analysis of the simulations results and an assistance to the Club Hermes to finalise the forecast.
5) Realisation of an environmental study on macroeconomic impacts of pollution abatement investments : the study examines the consequences of an increase of the private investments due to SO2, NOx abatement investments (the production costs are initially increased by the capital costs of the environmental measures. The final demand is stimulated by the impacts on investments). A second part of the study examines two economic agents behaviour : increase of firms production prices or transfers of government to the private sector. In the latest case, three financing methods are discussed : issuing Governmental debt, increasing VAT rates or increasing direct taxes paid by households.
Funding SchemeCSC - Cost-sharing contracts
CB1 2HS Cambridge