International Futures at the Pardee CenterInternational Futures Help System
Structure and Agent System: Economics
Goods and Services Market
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System/Subsystem
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Goods and Services
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Organizing Structure
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Endogenously driven production function represented within a dynamic general equilibrium-seeking model
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Stocks
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Capital, labor, accumulated technology
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Flows
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Production, consumption, trade, investment
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Key Aggregate
Relationships
(illustrative, not comprehensive)
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Production function with endogenous technological change; price movements equilibrate markets over time
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Key Agent-Class Behavior
Relationships
(illustrative, not comprehensive)
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Households and work/leisure, consumption, and female participation patterns;
Firms and investment;
Government decisions on revenues and on both direct expenditures and transfer payments
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Households, firms, and the government interact via markets in goods and services. There are obvious stock and flow components of markets that are desirable and infrequently changed in model representation. Perhaps the most important key aggregate relationship is the production function. Although the firm is an implicit agent-class in that function, the relationships of production even to capital and labor inputs, much less to the variety of technological and social and human capital elements that enter a specification of endogenous productivity change (Solow 1957; Romer 1994), involve multiple agent-classes. In the representation of the market now in IFs there are also many key agent-class relationships as suggested by the table.
Financial Flows / Social Accounting
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System/Subsystem
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Financial
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Organizing Structure
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Market plus socio-political transfers in Social Accounting Matrix (SAM)
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Stocks
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Government, firm, household assets/debts
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Flows
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Savings, consumption, FDI, foreign Aid, IFI credits/grants, government expenditures (military, health, education, other) and transfers (pensions and social transfers)
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Key Aggregate
Relationships
(illustrative, not comprehensive)
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Exchange rate, movements with net asset/current account level; interest rate movements with savings and investment
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Key Agent-Class Behavior
Relationships
(illustrative, not comprehensive)
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Household savings/consumption;
Firm investment/profit returns and FDI decisions;
Government revenue, expenditure/transfer payments;
IFI credits and grants
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Households, firms, and the government interact in markets, but more broadly also via financial flows, including those related to the market (like foreign direct investment), but extending also to those that have a socio-political basis (like government to household transfers). A key structural representation is the Social Accounting Matrix (SAM).
The structural system portrayed by SAMs is well represented by stocks, flows, and key relationships. Although the traditional SAM matrix itself is a flow matrix, IFs has introduced a parallel stock matrix that captures the accumulation of assets and liabilities across various agent-classes. The dynamic elements that determine the flows within the SAM involve key relationships, such as that which constrains government spending or forces increased revenue raising when government indebtedness rises. Many of these, as indicated in the table, represent agent-class behavior.
The model can represent the behavior of households with respect to use of time for employment and leisure, the use of income for consumption and savings, and the specifics of consumption decisions across possible goods and services. And it represents the behavior of governments with respect to search for income and targeting of transfers and expenditures, in interaction with other agents including households, firms, and international financial institutions (IFIs).
IFs thus represents equilibrating markets (domestically and globally) in goods and services and in financial flows. It does not yet include labor market equilibration.