https://cpes.org.uk/om/files/original/762aa8e03f51f17a01a2cf994fe14724.pdf 8f364a3c7c16f83c2de4629dea9301f4 Dublin Core The Dublin Core metadata element set is common to all Omeka records, including items, files, and collections. For more information see, http://dublincore.org/documents/dces/. Title A name given to the resource Technical Manual on the CEPG Model Text A resource consisting primarily of words for reading. Examples include books, letters, dissertations, poems, newspapers, articles, archives of mailing lists. Note that facsimiles or images of texts are still of the genre Text. Text Any textual data included in the document Technical Manual on the CEPG Model by M.J. Fetherston April 1976 ''" - .C;;.o;;n.;;t;e;pn.;t;s;_. s.' ·lntroductiO!l I 9eneral Methodology · Ace.owiti.ng .def.i..ni dons. ·· Caus_al assumptJ,.ons Tr.eatment of· b·ehaviourA.l relationships 0 ·' ..... ···· · ·· ·· ', .:1. Private _expenditure · · :2. Ba~ance of pa~ents_ :h :. Pubiie s~e·tor · .~4... North Sea S~ Employment · ..... ·,6,_ Earnings · ._ t. · Pr.iees 8 ·. · St~.ekbuilding ·and .stock· a~preciation .9. GDP -identities ·Appendix I - 1- Introduction This manual contains a full specification of the model used by the Cambridge Economic Policy Group to produce·medium-term assess~ents of the UK economy. The version of the model described here is that used to generate projections of the economy up to 1980 published in the group's Economic Policy Review, March 1976, No.2.+* . The model is implemented by a set of general- and special-purpose computer programs~; these ar~ not described in the manual, which is principally concerned with "the structure and behavioural relationships of the model. Part I of the manual briefly explains the methodology employed, noting where and why concepts underlying definitions of variables used differ from those implicit in the official national accounts, describing causal assumptions and the treatment of behavioural relationships, and explaining how solutions are obtained. Part II. of ·the manual gives a full specification of the relationships and variables of the model, grouped by broad topic. Appendix I tabulates values of constant and trend coefficients esti,mated on currently available-data. + Hereafter referred to as EPR No.2. * Previous medium-term assessments by the group, such as that published in EPR No.l., Feb1~ary 1975, have contained a fairly full account of the versior of the model which!was in use at the time. For the purpose of this year's exercise the model has been greatly extended in scope and ·size, so tha't the Appendices to EPR No.2 contain only a general account of the key concepts involved in the construction of the model, together with a description of the properties of the main equations which determine its overall behaviour. The model itself is the joint work of CEPG members. ·_;, These Fortran programs were written by Francis Cripps and Martin Fetherston, for use on the University of Cambridge's IBM 370/165, with facilities provided by the University Computing Service. The regression programs owe much to work on time-series estimation by M.H. Pesaran, a former · -member of the Group. - 2- I General Methodology The model consists of a set of precisely defined variables for which annual data have been obtained (mainly from national accounts) covering at least the period from 1960_-to date, together 'fith a set of functional relationships between the variables which are either identities or technical 'I and behavioural hypotheses. The variables of the system have been chosen and defined to permit a simple but compr!!hensive description of key short and medium-term objectives, instruments, -exogenous conditions and structural I relationships which constrain macro-economic policy in the UK. Accounting definitions The basic data of the model differs from official statistics in four main respects. First, production sectors are classified into 'North Sea', 'public services' and the 'business sector' in order to provide an explicit ··analysis of the effects of future development of the North Sea on national output and income, and to take account of the effect of future levels of public service employment on the growth of overall productive potential. Second, disposable income is divided between three branches of the private sector - 'h.ousehold. grants', 'wages· and salaries', and 'property income' (the latter includes all private rents and income from self-employment as. well as company profits, interest, etc.). This division allows explicit account to be taken of the effects of future policies on the distribution of private income and on the timing and composition of private expenditure. ~hird, indirect taxes and subsidies are divided into two categories - 'sale1 taxes' which are specific to different kinds of final expenditure (i.e. taxes on consumption, investment, imports etc.) and those which feed into business costs ge~erally. This analysis forms· the basis of a distinction "betwe.en expenditure valued at market prices and at 'full cost'. The latte; .excludes taxes and subsidies on outputs but includes net taxes on primary - 3- inputs which to the business secto~ comprise local authority rates, protective duties on imports, royalties on North Sea supplies of oil and gas, less subsidies to public corporations. All imports, whether of intermediate or final goods, are assumed to enter the production process as inputs;. imported final goods re-emerge in unchanged form but after sales taxes and addition of distributive rnargins, etc. Fourth, the volume series for the component items of business sector domestic sales - consumers' expenditure, public .current expenditure texcluding public services), public and private fixed investment (excluding the North Sea) - are measured at factor cost inclusive of the relative price effect. · The price of business *sector dome~tic sales is the basic domestic price variable in the system. Causal assumptions Variables in the model are classified into four groups : (a) exogenous variables assumed to be determined either by Government policy or by external circumstances which lve do not seek formally to ex~lain. (b) endogenous variables determined by identities. (c) endogenous variables determined by behavioural relationships for which explicit hypotheses are provided. These hypotheses embody key assumptions about how the economy functions as 2.n inter-dependent system. The econometric procedure used to determine them is discussed in the next section. (d) semi-endogenous variables. These variables are reg2.rded as being determined in part by external circumstances which are exogenous to the model and in part by other variables of the system. For example, a mainly exogenous variable might be assumed to adjust in money terms to general price inflation.· Formally such variables are treated in the same manner as fully endogenous variables of type (c) above, but * See EPR No.2., pp. 96-98 for data sho~ing the reconciliation of CEPG definitions with national accounts for 1974. - 4- the beha-1ioura~_,hypotheses are· only expected to provide a partial · \~ 7. explanation of their movement over time. >. The model~ thus- defined, is our representation of the economic system. It ean be used both- to interpret the,causes of past developments and to obtaiu,conditional predictions of the.effects, past or future, of alternative policies and external circumstances. Its- structure is verified in two main ways. First, the actual past values of variables pred~cted by behavioural ·-hypothe:ses are compared with the values which would be predicted by the equations; taken one at~. time, in the absence of disturbances or 'residual errors'. This test is strongest when applied for data which have not been used to estimate any parameters in the equations, and we generally reserve data for the most recent past year for this purpose. The second kind of check on the model is to examine its properties as a complete system for example, the response to an increase in export demand - to ensure that the overall behaviour of the model is in reasonable accord with what might be inferred fro~ past experience. This is an important check because a set of hypotheses each of which seems plausible on its own may easily give implausible results when the hypotheses are combined. Treatment of behaviou~al relationships s; The general form of behavioural relationships specified in the model is g(y) ""a 0 + a1t + f(p,x) + u; g(y) = y or g(y) = ln y where y is the dependent variable, a 0 and a1 are 'trend' parameters, / t is a·linear tim~.trend, f is a (non-linear) function of parameters p and current or lagged values of other variables x , and u is a disturbance term. The values of structural parameters p are generally obtained from .. ·. * .the results· of time-series estimation conducted separately. The values of.the trend parameters a and are obtained as OLS+ e.stimates of 0 g (y) - f (p, x) · a 0 + a1t +u over a uniform time-period.~ Two main advantages derive from incorporating linear trends into the -specification of all behavioural relationships. First, it permits a . .. convenient display of bff-ti'end past behaviour in which, writing an asterisk for trend values, the values of each dependent variable can be analysed as £1g(y) - a* · ~(p,x) - +u A quick check is then possible of the extent to which the structural hypothesis f(p,x) explains past fluctuations about trend of g(y). The second advantage is that projections of the behavioural relationship~ ~or future years will generally be rather robust in that they will not be very sensitive to the exact values specified for p · This is demonstrated by the following algebraic theorem Consider an equation with one explanatory variable yt · a+ 0 + ext -+ut and, for a given pre-specified value of the structur~l parameter B , *' These estimates are often based on more complex stochastic specifications (e.g. first or second order serial correlation or moving-average disturbances) and may also make use of additional specification of the functi·on f _,which is not incorporated in the model because of its limited relevan-ce or cost in terms of adding extra variables. More general estimation procedures have not so far been used at thLs stage in order to keep down computing costs. ~ The period 1962-74 w~s used in the March 1976 version of the model. But note that in some cases (e.g. North Sea prices) shorter series (1967-74) have to be used, because the activity did not exist over the full period, - 6··- . A ·-'·-~ ·.\: ·. ·: ... ·.... ,. define a (B) ·,, · Clf~(Bl ',as conditional OLS. e.stimators o! a and u ' 0 . . ~ ··-. ;:-. 01 obtained by regression of · yt Bx t · a 0 + . a1t .+..·ut (t£T ) .0 on observations for a past period T ... ... 0 Define yt (B) a (B) + a (B)t + Bx· 01 t . as the set of p·redicted v~lues implied b}" the ·.regression for some future ·period, T1 , con1itional on assumed values of xt and on S · Define the 'trend' value of the explanat,oty variable over 'the fu.ture period T1 as ... ... -x*t . yo + Y1t ; ' .<tE:Tl) ~; A .... where y 0 and yl are OLS estimates obtained ·;by regression over the past pe.riod T of 0 .. · (tE:T ) 0 It can then be shown ~hat for·any two alternative pre-specified parameter \values, J and B2 , the'difference between predicted values obtained by the above method can be expressed as Hence the difference in p~~dicted values of the dependent variable is proportional tq the devi~tion of xt from its trend value. In particular, if x lies on its trend, i.e., if xt · x* t ,_ then Yt 0\) · yt (B2), and the predictions are invariant to the pre-specified value of S .* * This method embraces situations where B has been estimated without a trend term for the same ~ast period as above, i.e. T ; in this case the estimated'valu generalise to the e s of 1tuat iao1n(So) will be zero. f K(line4r) ex The plana t res ory 3lt can variab be les seen to by ...n o t i n g that each variable can be considered one by one after redefining yt to allow for the influence of variables already considered; we eventually .obtain ... · ~ ·[ce. 11 1 - e.1 2>(x1.t - 1· - '· where Bt;. ( all ····..BICl)' etc · - 7- More generally if the deviation of xt from its trend value is small, the predicted value . y.t will be insensitive to small changes in the pre-specified value of the structura.l parameter B Although this property is convenient for projections when explanatory variables stay close to trend, not too much should be made of it. In particular it has no relevance at all to ~omparisons between alternative projections for the same future year for 'tjhich purpose reasonably accurate specification of values of st~uctural parameters is essential. In practice the aboye procedure for obtaining conditional predictions for future years may need some modification ·. · The record of residuals in behavioural equations is examined to see whether current residuals are likely to persist in future years; future disturbances, u , are then either assumed zero or carried forward by a serial correlation process, starting from the latest past value, with a priori coefficients. ··In the case of semi-endogenous variables (and where there are evident reasons for so doing, in the case of one or two fully endogenous variables) the trend may be modified, or the entire term may be overwritten for future years. .·. - 0- Solution For given values of exogenous variables, including trend parameters and ! assumed future residuals, the model is then· ready to be solved.year by year to obtain values of endogenous variables. Unless the pattern of mutual dependence of endogenous variables can be reduced to a triangular structure by appropriate ordering of equations, no simple sequential solution to the model is possible. If equations are eva1uated in a given order values of some endogenous variables will then be requ!red before they have been determined in an equation. Such variables are termed 'simultaneous' variables. The procedure we follow to obtain a consistent solution is to modi~y trial values for such variables until they correspond to a high degree of accuracy with the values subsequently determined when the equations for the variables are evaluated. The method of solution also permits us to specify any subset of exogenous variables (up to a. certain size) as instruments whose values in each y.ear are to be determined such that a subset of an equal number of endogenous *variables attains target values in that year. The possibility of defining a set of instruments to achieve given targets is of course limited by the structure of the model itself, because certain combinations o'f· -targets may not be feasible with the defined set of instruments. * For the three projections presented in EPR No.2, targets and instruments are as follows 'Existing a~rangements' and Devaluation Targets Instruments B TCl WS*' WD** IRCH RX Import restriction Targets B WS*' IRCH u Instruments TCl WD** RX MCON In the devaluation case the improvement in export competitiveness (IRCH) in 1976-77 is chosen so as to reduce unemployment by 1980 to 900,000, i.e. to the same level as under import restriction- -9· - A consistent sQlution of the model requires first, that final values of simultaneous variables equal the values supplied before sequential evaluation of the equations, and second that pre-specified values of target variables are attained setting appropriate values of instruments. Thus, adopting the following notation Y~ ' Yo ' Y"o' y1' t yl y2 , y"'2 . z' initial, final and target values of target ·p simultaneou~ variables initial and final val~es of other simultaneous variables final and target values of other targe~ variables values of instruments . a consistent solution of the model is obtained by finding initial values y' . 0 ,. y' 1 and z' such that the following conditions hold to an acceptable degree of accuracy "' "'y' · ·0 y 0 · y 0 ~.y' 1 · y1 t y2 · y 2 The ordering of equations in the model is chosen, with the aid of a special-purpose computer program, such that the number of simultaneous .variables is minimised; in ce.rtain straightforward cases it is possible to reduce this number further by analytic substitution in the structural equat1I ons. "' · '" With the current model there are eight simultaneous variables - QUK, PUK', PRUK', NR', ·pc", TW, MMUK, U . (see Part II for definitions) _10- Solutions satisfying the above conditions have readily been computed for the current version of the model using a first-order linear approximation. Writing u· y' 0 - y0 y' 1 - y1 *y0 - y0 y2 - y2* '· u~Jand J .. , t:01.. V= y 1 .. z' we-< start with a trial set of initial values, v , and iterate on 0 v.· l, v. ]. - 1 - J-1u(v.) l i = 1,~, ··· where J is estimated numerically at each step of the iteration until lul is acceptably small. * *Solut_ion of the current mod"'el with 8 simultaneous variables and up to 4 targets to a high degree of accuracy requires not more than six iterations and less than i second CPU time for each year on the University's IBM370/165 computer. · - 11 -· II The Model The overall struetwre of the model is similar to that of most ·aggregative Keynes~an models. Prices and volumes of expenditures determine output and factor incomes, which are then redistributed, ~ mainly via the tax system, as disposable incomes. Private expenditure in money terms is mainly determined by private disposable incomes, public expenditure on goods and services is detet']llined in real terms by government decisions, while imports and exports are determined by demand and relative costs or prices (unless import restrictions are assumed to be in force). Prices are determined by costs and prices of eA7orts and imports are also i influenced by'the relativity between domestic and world price levels. Labour costs are determined mainly by wage settlements, which are themselves the outcome of a model of a bargaining process*· Table 1 below illustrates the structure of the model in terms of the extent of interdependence between its various sections. The variables of the model have been defined in order to conform to the general accounting principles set out above in Part I; the past data of the model have therefore been constructed by modifying official published data in accordance with those principles, which also dictate the framework of accounting identities within the model. The equations of the model are fully described below under the following headings 1. Private expenditure 2. Balance of payments .3. Public sector ... 4. North Sea 5. Employment 6. Earnings * See EPR No. 2, Chapter 2. Table· 1 Section 1 2 3 4 5 6 7 8 9 - 12 7. Prices .8. Stockbuilding and stock api;»reciation 9. GDP identities. The structure of the model Number of endogenous variables determined in.the section 1 Number of endogenous variables which appear as explanatory variables, but are determined in-other sections 23456 789 Total number of endogenous variables determined in other sections 11 5910 1 10 1 18 35 5 5500121 19 26 59 422131 27 18 0 30 00 100 4 5 0000 000 1 1 10 20 20 1 00 1 6 8 0 4 2 10 1 01 9 5 010000 2 1 4 4 2 '4 3 4 0 Q 1 2 16 Number of exogenous variables 3 28 33 10 4 7 5 1 5 Total 122 14 26 21 15 3 4 7 7 7 65* * A number of exogenous variables appear in more than one section. total number of variables in the model is thus 122 + .65 = 187 The Each section shows the equations which determine values of endogenous variables, followed by an alphabetical list of definitions of all the variab1£ appearing in the section. The term 'tr' in a behavioural equation represent! the expression a 0 + a1t +u , where a 0 are constant and trend coefficients and u is a residual as described above in Part I (p. 4 ). Values of these coefficients estimated from currently available data are tabulated in Appendix I. All equations in which no such term appears are i~entities. The symbols in the lists of definitions are followed by either an equation . reference number. for an endogenous variable, or the symbol (ex), which denotes a variable exogenous to the model. The following - 13 - notational C)nventions are adopted for the units in which variables are measured £m £million at current p·rices £1970m £million at 1970 prices th thousands defl ratio of current money value to value at 1970 prices (may diffeT from unity in 1970 if e.g. the deflator in question is the ratio of a current market price. series to the corresponding 1970 factor cost series) ratio ratio of two variables expresse~ in the same units, e.g. effective tax rates. index index number, generally based on 1970=1.0 (p. 2 ) As expldned in Part ·r: ·above, / expenditures may be valued at 'full cost', in addition to conventional measures at factor cost and at market price~. The foll~wing notational conventions are adopted for expenditure series :' Constant (1970) factor cost Current :uu cost Current ~narket prices no superscript (e.g. c for consumption at 1970 factor cost) single prime (C') double prime (C") Any exce:>tions to this convention are noted where they occur. Flows of income measured in current money terms are written "lith a single prime superscript. -· Llf- - 1. Private exeenditure This section discusses the equations which are used to predict private ·..;, . expenditure at current market prices, excluding sbockbuilding and investment in the North Sea. rrevious work by the CEPG, based on analysis of post-war data from 1954 onwards, has emphas~sed the stability of total private expenditure in relation to total private disposable income. The original formulation, presented in ev~dence to . the House of Commons Expenditure . *Co~ttee , expressed real private expen~iture as a function of current and lagged real disposable private income and certain monetary variables - hire purchase credit, personal bank advances, and increases in the book value of stocks. This relationship has ~~nee been reformulated in current price terms, the correct specification if. private sector behaviour is regarded as a process of adjustment of net desired holdings of public and overseas financial assets to income+. This overall relationship (the main role of which is to permit inferences to be drawn about the appropriate stance of fiscal policy) has been disaggregated in two main ways : expenditure is divided between consumption and fixed investment, and each of these is a function of current and lagged levels of three types of private disposable income - wages and salaries, household grants and property income. The conventional definition of disposable property income (YR') used generally i~ the model is here adjusted by deducting net non-North Sea private investment abroad, which corresponds to the addition of net intra-company investment abroad to private expenditure in the original formulation presented to the Select Committee. The justification for this-is that such investment should be treated as expenditure on goods, rather than as acquisition of financial assets, as implied by the conventional definiticn. Here the analogous modifi- cation has been-"made to the definition of property ~~, although using a wic * Cripps, Godley and Fetherston, 'Puplic e}~enditure and the management of the economy', Ninth Revert from th~~menditure Coo~ittee, Session 1974, HC 328 ~-' . + See EPR No.2, Chapter 6. definition of capital flows. Its implication is that domestic investment can be financed directly by inward flows of private capital (rather than by property income itself), whilst outward capital flows constitute a drain on domestic investment. The coefficients on the v2rious categories of income were derived from analysis of data since 1960, imposing a priori the coefficients on household grants and hire purchase debt, and the con£traints that the coefficients on current and lagged values of each category of income should sum to approximately unity. Thus the equations overall retain.. the property of an approximately one-to-one relationship between increa~es in private income, and the subsequently generated increase in private expenditure. The principal influence of the disaggregation of income is on the timing and nature - i.e. vi"hether in the form of consu~:_:>tion or investment - of the expenditure generated, rather than on the overall ~~osr~ of such expenditure. The term on w.2ges and salaries in the investment equation renresents the influence of dis~osable wagz inco~es on d~ellings investment, whilst the cons~tion equation includes the efZect of consu~?tion out of dividends and interest. Earlier fornrulations of tiv:~ ar;gre<::;at:e relationship for private expenditure included as one of the expla~atory vari~bles the incr~ase in book value of private stod'-S and work-in-p:cogreas~ i.e. stoekbuilding plus stock appreciation. with a coefficient of al~::.:::st unity. This incorporated the hypothesis that compenies borrm;r tr.·JTC er l2ss Ol'le~for-one with increases in book value of stocks, so that this fact0r r2pTcsents a virtually automatic source of finance to the private sector. Stockbuilding uas also included as part Qf private expenditure. The i~plication of this procedure was that the. implied overall relationship betv.:::e:n private expenditure and private incone could be disturbed either by fluctuations in stockbuilding or stock appreciation; but it was cle~~ t~~t the relationship might not be - 16 - appropriate in periods o . rapid inflation and high stock appreciation. on · which firms might not wi h to borrow in full {nor banks to lend) to finance spending as in less infl:.tionary periods. The current specification embodies a modified hypo;·hesis about th·e influence of stocks which has been found to be con~istent ~tth past data : the absence of any stocks term from either side of the equat:ons implies· that firms are able to borrow to the full extent of any stocld;;uilding which ·they undertake (which may be regarded as a normal cyclical phe:·tom.enon), but· do not borrow at all (or possibly only up to some constant a:mount) on stock appreciation (which could not be described as a normal c:;"lical phenomenon after recent experience). Stockbuilding thus rept· gents a source of cyclical disturbance to the overall behaviour of priva~e ne ~cquisition of financial assets (after deducting stockbu:tlding), whilst ;: tock appreciation has no direct effect. Nevertheless, the rate cf inflation does play a key role in determining the ·magnitude of the pr'vate financial surplus : for a given rate of growth · of re~ income, the eff,H:;t of the lags in the equations is to generate a larccr l.~f'ivat~ financic. i surplus~ the higher the rate of inflation. Conversely, as the rate of inflation moderate_s, the proportion. of a~sposab1e inco:r.~! required to sust:;in the desired relationship between holdings of finc:ncir.l asset.s and in::orae ~alls. 1.1 C" = tr + }.47 YW' + 0.49 YH'_ 1 + 0.95 YH' + 0.05 YH'_ 1+ 0.36 (YR' 1.2 C' +KIT<'- KUICF') + 0.20 (YR' -1 + KFUK 1 - 1 - KUKF' -1 ) +HP' G C" - 'tTC' 1.3 c s_ C'/Pr,z.t =1.4 IPUK" tr + 0.05 YW' + 0.16 (YR' + KFUK' - KUKF'l + 0.15. IPUK' IPUK (YR'_ 1 + KFUK'-l- KUKF'_ 1) + 0.16 (YR'_ 2 + KFUK'_ 2- KUKF 1 _ 2) e lPUK" I (l+TI) - e IPUK r /PUK' 1.7 YW' 1.8 YH' 1.9 · ~ CGS' + WBUK' - TTH' B GRH' TTH' .. ?"'~n~~ + PRUK' + PFUK' .;.. PtJKF' + NR' +·GRRC' + GRRI.PUK' - T~ - 17 - 1.10 PRUK' · QUK' · TPPG' - WBUK' 1.11 NR' 11 NG' - NF' CGS' (3.4) Income from employment in public services (£m) c (1. 3) Cofts\XIIlers'. expenditure (£1970ttt) ' ' ~. .4 . ·< C' (1.2) Consumers'· .exj;enditrlr~ (tu· at full cost) C" (1.1) Consume~s' expenditure (£m at market prices) GRH' (3.11+) Household grants (£m) GRRC' (3.17) Other current grants to private sector (£m) GRRI (ex) Capital grants to private sector (£1970m) HP' (ex) Net increase in consumer hire purchase debt (£m) IPUK (1. 6) Private fixed investment, excluding North Sea (£1~70m) IPUK' (1.5) Private fixed investment, excluding North Sea (£m at full cost) IPUK" (1.4) Private fixed investment, excluding North Sea (£m at market prices) KFUK' (2.32) Long-term private capital inflows to business sector (fm) KUKF' (2.33) Long-term private capital outflows (£m) NF' (2.28) Public sector net payments of interest and dividends abroad (£m) NG' (3.22) Total public sector net payments of interest and dividends (£m) NR' (1,11) Private sector net receipts of interest and dividends from public sector (£m) PFUK' (2,27) ~rivate property income and transfers received from abroad (£m) PNSUK' (4.16) North Sea profits paid to UK, after tax (£m) PRUK' (1,10) Gross private profits of UK business· sector, including private rents and income from self-employment, after stock appreciation (£m) PUKF' (2.26) Private property income and transfers paid abroad from UK business sector, before tax (£m) PUK' (7.1) Price of business sector domestic sales (defl) QUK.' (9.2) Business sector output (£m at factor cost) TI (ex) Effective rate of sales tax on business sector fixed investment and sales to North Sea (ratio) TPPG' TTC' (3.21) Gross trading surpluses of public corporations and other public enterprises, after stock appreciatiot;~~· and ""' public sector rent (£m) · ii/; '/ ' ' (3.18) Net sales tax revenue on consumers' expendith!~) TTH' (3.11) Direct tax on household grants (£m) TTR' (3.12) Direct tax (including national insurance contributions paid by the self-employed) on property income (£m) · - 18- TTW' WBUK' YH' YR' YW' (3.9) Direct tax and national insurance contributions on income from employment (Em) (6.10) Income from employment in business sector (Em) (1. 8) Disposable household grants (Em) (1. 9) Disposable property income (fm) (1. 7) Disposable income from employment (fm) - 19 - 2. Balance of Payments This section describes the components of the current account of the balance of payments, and the basic balance on current and long-term capital account. For the analysis of trade in goods and services, exports are divided into two categories in order to treat exports of fuels separately from the rest (mainly manufactures and se~ices), whilst imports to the business sector are divided into seven ca~egories - food, drink and tobacco, fuels, ·basic materials, semi-finished manufactures, finished manufactures (excluding U.S. military aircraft), U,S. military aircraft, and other imports (mainly services). (a) Exports of goods and services Exports of fuels in volume terms are projected exogenously on the basis of the projections of North Sea production. The volume of other exports is determined by world trade and the average level of costs of UK exporters expressed in foreign currency relative to the world price of manufactures. .The implied elasticity of the UK's share of world trade with respect to the growth of world trade is -0.22, which together with the effect of the trend term in the equation implies, assuming no changes in cost competitiveness, that with world trade growing at 8% per annum, the UK's share would decline by 2.757. per annum; world trade would need to fall by nearly 47. per annum in order for the UK's share to increase. The elasticity of exports with respect to cost competitiveness implies a long-run elasticity of exports with respect to export prices in foreign currency of about -2.4 (see (c) below). (b) Irnports of goods and services Imports of food, drink and tobacco and of services are projected exogenously; imports of U.S. military aircraft are merely present as an adjustment to past data. Imports of fuels are projected on the basis of - 20 - the amount and composi~ion of North Sea production in relation to domestic energy requirements and fuel e)(ports, with allowance made far:the sensitivity of energy requirements ..to the level of business activity. Imports of basic materials are de~ermined by business output and by the stockbuilding cycle. Both of the equations for manufactures contain both demand and lagged relative price terms : the demand terms are business output and the ratio of stockbuilding to output in the case ofpsemi-finished manufactures,_ and business sector final sales for finished manufactures. Assuming constant relative prices, · 3% per annum growth of final sales implies 10% per ' .. annum growth'of imports of finished manufactures. Quantitative import < restrictions are incorporated into the model simply by assuming that imports of finished manufactures are reduced to the required degree (shown by MCON) below the level with which they might otherwise be expected to attain. This assumption is made in order to simplify solution of the model ~n this case in practice &ome restrictions might be applied to semi-finished rather than finished manufactures. The identities for MUK and M show the definition of total imports to the business sectoT and total imports as conventionally measured (including North Sea imports from abroad). The implied elasticity of total imports with respect to import prices in sterling (see (c) below), based on· 1975 weights, is about -o.33. (c) Export and import prices The prices of exports and imports of fuels are both related to the world price of fuels expressed in sterling, allowing the quality differential for UK fuel exports to be maintained in the future. Prices of other categories of exports and imports are determined, with a lag, partly by domestic costs (adju~ted for indirect taxes) and partly by foreign prices, expressed in sterling, depending on the extent to wh~ch the UK acts as a - 21 - price-taker on world markets in the various commodity groups. For exports, and imports of finished manufactures and services, the foreign price variable is an index of world prices of manufactured exports, while fo~ food and basic materials an index of world prices of food and materials is used. A weighted average of the two foreign price indices is used in the equation for the price of semi-finished manufactures. The relationships also allow for different lengths of lag in the adjus'tment of prices, with the lag being longest in the case of food. Overall these price relationships imply (on the basis of 1975 weights) that the long-run effect of a 1% depreciation of sterling, allowing for the effects on domestic costs of changes in the cost of imported inputs, is to increase sterling export prices by 0.64% and sterling import prices by 0.84%. (d) Current balance The first part of this section contains the identities necessary to derive the balance of trade in goods and services, expressed at current prices. The difference between the current balance and the balance on goods and services comprises net property income and transfers from abroad, or 'overseas sector disposable income' with the sign reversed. Private interest, profits, dividends and transfers paid abroad from the business sector, measurea before tax, are related to total private business factor income; North Sea profits paid abroad are treated separately .(see section 4 ) The corresponding inflows are projected in relation to the level of activity and of prices of manufactures in the world economy. ' Public sector interest payments are determined by the cumulative total of deficits on the basic balance and the level of world interest rates which determine the terms on which overseas borrowing is made. Government transfers abroad are projected in volume terms on the basis of the Public Expenditure White Paper and linked to general infl:t'"i.::-C'._.. - 22 - · {e) Basic balance The basic balance of payments on current and long-term capital account is required in the model to generate interest_payments on overseas borrowing. Public sector net long-term capital inflows are projected exogenously, whilst capital inflows to the North Sea are discussed under Section 4. Other private inflows and outflows are projected in relation to the corresponding reverse .flows of private property income, since a substantial proportion of profits earned by UK ~ompa~ies abroad, and by foreign companies in the UK, are retained to finance investment rather than repatriated to the host country. Net trade credit is derived from changes in gross import and export credit outstanding resulting from changes in exports and imports and in trade credit ~ ratios. Equations (a) Exports of goods and services 2.1 ln XX = tr + 0.78 ln WF- 1.18 RCH 2.2 RCH 0.3 ln IRCH + 0.7 RCH_ 1 2.3 IRCH 11 PUK' {1 + TX) RX PWF' 2.4 X XX+XF (b) Imports of goods and services 2.5 MF = tr + 0.0225 QUK 2.6 MB = tr + 0.4 .QUK + 0.109 S 2.7 ln MS = tr + ln QUK + 0.3 RCS + 3.5 S/QUK [::r ~K2.8 ln MMUK = + }·0 ln (QUK + + XNS) + 1. 8 ReM] · MCON 2.9 RCS Je 0.5 ln [(l+T~~~PMS' +_.,0.5 RCS_1 - 23- J2.10 RCM · o. 7 ln [ PUK' (l+TMM) PMM' + 0.3 RCM_1 ' 2.11 MUK il MA+MF+MB+MS+MMUK + MVUK +MAC ·2.12 M MUK + MMNSF + MVNSF (c) Export and import prices Excluding fuels, the general form is ln p ~ tr + a 1 ln pf + (1 - a 1) ln pf~ 1 (~ [a ~where 1n pf · a 2 1n 0 ) + (1 - a 2) 3 1n PAF' + (1 - a 3) 1n PWF' 1n RX] pT 2.13 Exports n PXX' 0.67 0.50 0 1 1 + TX Imports . 2.14 Food, drink & tobacco PMA' 0.50 0.10 1 1 + TMA 2.15 Basic materials PMB' 1.00 0.10 1 1 + TI1B 2.16 Semi- finished PMS' manufactures 1.00 0.40 o. 7 1 + TI1S 2.17 Finished PMM' 0.75 o. 30 0 manufactures 1 + TMM 2.18 Services PMV' o. 80 0.20 0 1 For fuels, 2.19 ln PXF' = tr + 1n (PFF' /RX) 2.20 .PMF' ~ PFF' /RX .::\ - - 24 - (d) Current balance+ 2.21 X' XX.PXX' + XF.PXF' 2.22 2.23 X" MUK" X' (1 + TX) I · MA. PMA' ( 1 + TitA) + MF . PMF ' (1 + TMF) + MB I PMB ' (1 + TMB) +MS.PMS' (1 +·tMS) + MMUK.PMM' (1 + TMM) + MVUK~PMV' +MAC' 2.24 M' = MA. PMA' + MF I PMF ' + MB. PMB' + MS I PNS ' + MMUK I PMM' + MVUK. PMV' + MAC' + MNSF' 2.25 BT' ;;; .X" M' 2.26 ln PUKF 1 = tr + 1n PRUK' 2. 2 7 ln PFUK 1 = tr + ln (PWF 1 /RX) + 0. 5 ln \VF '· 2.28 NF' = tr - RIF.SBBW' 2.29 2.30 SBBH' YF' 1SBB~-1'_ + BB'_ .RX. 1 PNSF' + (1- TF).PUKF' - PFUK' + KF' + GRF' 2.31 B' BT' - YF' (e) Basic balance =2.32 KFUK' tr + PUKF' 2.33 KUKF' tr + 0.65 PFUK' 2.34 KTRC' RKTX. X" " RKTX ·X" -1 - nfUt'·.'T~.'' f · M ·" I + RK'P.!. · .11-1 V' oil -1 .· + The current balance of payments at 1975 values (B) is used as a target variable in solutions of the model. For this purpose two extra variables are required B - B' · PDX" 19 75 CGS'~ J /PDX" PDX11 - - [(l+TMM)MMNSF' + MHNSUK" + IPUK" + C" + S' + + CGP" + IG" j[ XMNSF +.)1H}lSUK + IPUK + C + S + CGS + CGP + IG PDX" ~s the domestic expenditure def1ato~ expressed as the ratio of current market prices to constant factor cost. - 2.35 BB' ',. 25 B' + KFUK' - KUKF' - KTRC' + KGF' + KFNS' B' (2.31) Current balance of payments (£m) BB' (2.35) Basic balance of payments (fm) BT' (2.25) Balance of trade on goods and services (£m) c (1. 3) Consumers' expenditure (£1970m) C" (1.1) Consumers' expenditure (Em) CGP CGP" (ex) (3.6) Public current expenditure other than public services (£1970m) Public curren4 t expenditure other than public services (£m) CGS (3.2) Public services expenditure (£1970m) CGS" (3.5) Public services expenditure (£m) GRF' (3.16) Government current transfers abroad (£m) IG (ex) Public fixed investment (£1970m) IG" 'IPUK (3. 7) (1. 6) Public fixed investment (£m) I Private fixed investment, excluding North Sea (£1970m) IPUK." (1.4) Private fixed investment, excluding·North Sea (fm) IRCH (2.3) · UK export cost competitiveness (ratio) KFUK' (2.32) Long-term private capital inflo'YYS to business sector (Em) KGF' (ex) Net official long-term capital inflows (£m) KFNS' (4.18) Long-term private capital inflows to North Sea (£m) KTRC' (2.34). Increase in net trade credit outstanding (£m) KUKF' (2.33) Long-t~rm private capital outflows (Em) M (2.12) Total imports of goods and services, including imports to North Sea (El970m) M' (2.24) Total imports of goods and services, including imports to North Sea (£m) MA (ex) "' Imports of food, drink and tobacco (£1970m) MAC (ex) Imports of US military aircraft (£1970m) MAC' (ex) Imports of US military aircraft (£m) MB (2.6) Imports of basic materials (£1970m) MCON (ex) Degree of import restrit: ..~ ~n on 'f\nished manufactures (==1 with r.o res trictit.'r. 1 (ratl.o) -- - 26 - MF (2.5) Imports of fuels (£1970m) MMNSF (ex) North Sea imports of capital equipment from abroad (£1970m) MMNSF' (4.10) North Sea imports of capital equipment from abroad (fm) MMNSUK (ex) North Sea imports of capital equipment from UK (£1970m) MHNSUK"(4.8) North Sea imports of capital equipment from UK (fm) MMUK (2.8) Imports of finished manufactures to UK business sector (£1970m) MNSF' (4.11) Total North Sea imports from abroad (fm) MS (2,7) Imports of semi-finished manufactures (£1970m) MUK (2.11) Total imports of goods and services to UK business sector (£1970m) MUK" (2.23) Total imports of goods and services to UK business sector (£m at market prices) MVNSF (ex) North Sea imports of serv:.ces from abroad (£1970m) MVUK (ex) UK business sector imports of 'other' items (mainly services) (£1970m) NF' (2,28) Public sector net payments of interest and dividends abroad (£m) PAF' (ex) World price of food and materials in foreign currency, based on UN index (index) PFF' (ex) World price of fuels in foreign currency (index) PFUK' (2.27) Private interest, profits, dividends and transfers received from abroad (£m) PMA' (2.14) Price of imports of food, drink and tobacco (defl) PMB' (2.15) Price of imports of basic materials (defl) PMF' (2.20) Price of imports of fuels (defl) PMM' (2.17) Price of imports of finished manufactures to UK business sector (defl) PMS' (2.16) Price of imports of semi-finished manufactures (defl) PMV' (2 .18) ~,Price of imports of 'services' to UK business sector (defl) PNSF' (4.17) Post-tax North Sea profits paid abroad (£m) PRUK' (1.10) Gross private profits of UK business sector (£m) PUKF' (2.26) Pre-tax private property income and transfers paid abroad from UK business sector (£m) - 27 - ,-- ! i PUK' (7.1) Price of business sector domestic sales (defl) PWF' (ex) World price of exports of manufactures in foreign currency, based on UN index (index) PXF' (2.19) Price of exports of fuels (defl) PXX' (2.13) Price of exports of goods ·and services excluding fuels (defl) QUK (9.1) UK business output (£1970m) RCH (2.2) Lagged relative export cost competitiveness (ratio) R.CM (2.10) Lagged relative pt'ice competitiveness for imports of finished manufactures (ratio) RCS (2.9) Lagged relative price competitiveness for imports of semi-finished manufactures (ratio) RIF (ex) Euro-dollar interest rate, average for the year RKTM (ex) Import trade credit coefficient (ratio) RKTX (ex) Export trade credit coefficient (ratio) RX (ex) Effective exchange rate, in weighted average foreign currency per unit sterling (based on official index in Economic Trends)(index) s (8 .1) Stockbuilding (£1970m) S' (8,2) Stockbuilding (£m) SBBW' (2.29) Accumulated basic balance (£m, converted to foreign currency) TF (ex) Effective tax rate on private property income and transfers abroad (ratio) TMA (ex.) Effective rate of protective duty on imports of food, drink and tobacco (ratio) TMB (ex) Effective rate of protective duty on imports of basic materials (ratio) TMF (ex) Effective rate of protective duty on imports of fuels (ratio) TMM (ex) Effective rate of protective duty on imports of finished manufactures (ratio) TMS (ex) Effective rate of protective duty on imports of semi-finished manufactures (ratio) TX (ex) Effective rate of sales tax on exports of goods and services (ratio) ·,,Gt - 28(ex) Volume of world trade in goods and services (based 0n OECD Index) (index) X (2,4) Exports of goods and services (£1970m) X' (2.21) Exports of goods and services (£m at full cost) X" (2.22) Exports of goods and services (£m at market prices) XF (ex) Exports of fuels (£1970m) XNS (ex) North Sea sales of fuels to UK (£1970m) XX (2.1) Exports of goods and.services, excluding fuels (£1970m) YF' (2.30) Overseas sector disposable income (fm) "" - 29 - 3. The Public Sector The model incorporates a full set of public sector accounts. (a) Expenditure on goods and services Current expenditure on goods and services is split into two components public service expenditure (CGS), i.e. expenditure on wages and salaries charged to current account, anq other (cqP). Public service expenditure is identically equal to public service employment multiplied by the average wage. Public service employment (measured in male full-..time equivalents) is largely exogenous, being derived from the latest Public Expenditure White Paper, though it is assumed to vary to a small extent with unemployment, since the proportion of authorised posts filled will tend to be higher, the greater the number unemployed. Average money earnings per male full-time employee in public services are projected on the basis of an assumed relativity with standard average money earnings in the business sector. I Other current expenditure and fixed investment, in volume terms, are derived from official projections in the Public Expenditure l~ite Paper. Both series are inflated by the general deflator for business sector domestic sales (PUK'). Public sector stockbuilding at current prices is· derived as a residual from total and private stockbuilding. (b) Direct taxes Direct tax receipts (including national insurance contributions) are divided into four categories. For household grants and private property income paid abroad, tax revenue is derived by applying effective average tax rates to income. Tax on domestic property income (which includes income tax on self-employment and unearned income, as well as Corporation Tax) is calculated by applying the effective tax rate to estimated taxable income gross income two years previously less investment allowances, and stock relief - 30 - - Direct tax on wages and salaries consists of both income tax and employees' and employers' national insurance contributions. Tax revenue is estimated by applying an exogenous marginal tax rate to total income from employment, and deducting from this sum the value of income tax allowances (the average per capita value of allowances multiplied by the estimated number employed at some stage during the year). (c) Grants Household grants comprise all social sec~rity benefits and student maintenance grants. The average pension is linked, with a lag, to average money earnings, The numbers of persons receiving grants, excluding the unemployed, is expressed in terms of pensioner-equivalents (using as weights the.ratio between average grant received in each category and the average pension) and projected exogenously using Government Actuary statistics, Household grants are obtained by multiplying the weighted numbers plus the unemployed (similarly weighted) by the average pension. Other current and capital grants to the private sector, and current transfers abroad, are all derived in volume terms from the Public Expenditure White Paper and linked to general inflation. (d) Indirect taxes Indirect taxes, including subsidies, are divided into those which affect I business costs - local rates, protective duties and subsidies to public corporations - and those which do not, such as VAT, specific duties and food and housing subsidies. In the latter category sales taxes on consumption are split into three components : first, those which are income-elastic and are assumed to vary with the value of expenditure (most of VAT, car tax, betting and gaming duty and specific duties on alcoholic drink)*; second, * The effective rate of such taxes, TCl, is used as the instrument of budgetary adjustment for projections in EPR No.2. - 31- other indlrect taxes (specific duties other than those on alcoholic drink, VAX on tobacco and hydrocarbon oil, and stamp duties), whose yield is projected in real terms, and third, subsidies, mainly on food and housing, . which are projected in money terms on the basis of forecasts in the White Paper. For sales tax on other expenditure items, and also protective import duties, effective average rates· of tax are projected exogenously. The contributions of these items to tax revenue appears in the expression for public sector disposable income, YG'. · Local authority rates are related to average earnings in public service employment; subsidies to public corporations move in line with general ·inflation, and are inversely related to real output. (e) Property income and debt interest Trading income and rent of public corporations and other public enterprises are assumed to move in line with general inflation and with movements in real output. Gross debt i~terest payments (NG' + NGC' ) in any year are expressed as payments in the previous year, less the interest no longer being paid as~ a result of current redemptions, plus the net addition t debt - a weighted average of this year's and last year's borrowing requiremen and the debt to be rolled over, multiplied by the average current rate of interest and minus the interest saved from current redemptions. Net debt interest is then derived by deducting interest receipts, which are projected to move in line with inflation, from gross payments. The average rate of interest payable on new debt is related to the level of world interest rates (whieh is exogenous to the model) and to variations in the exchange rate. 'Public sector disposable income consists of revenue from taxes and from trading income, less all grants, transfers and debt interest. The borrowing requirement is then obtained as total expenditure on goods and services ~n~ disposable income (equals the public sector financial deficit before capital taxes) minus taxes on capital plus asset transactions (acquisition of private sector assets through nationalisation, etc.) Eguations - 32- (a) Expenditure on goods and service& 3.1 E~S 3.2 CGS 3.3 WGS' 3.4 CGS' 3.5 CGS" 3.6 CGP" 3.7 IG" 3.8 SG' · EGS* + 0.1 U · 1, 9302 EGS · .* RWGSUK, WUK ' · WGS' .EGS · CGS' (1 + TGS) · CGP (1 + TCGP),PUK' · IG (1 + TI).PUK' · s' - SP' (b) Direct taxes 3.9 TTW' 3.10 1n TWl 3.11 . TTH' 3.12 TTR' 3.13 YRT' · -TW1 (EE + 1715 + 0,25U) + TW2 (CGS' + WBUK') · tr + 1n PUK' · TH,GRH' · TRR,YRT' · PRUK' -2 + NR' - RW1, IPUK" _2 + RW2, SAP' _2 - ARD' (c) Grants 3.14 GRH' · GR(EH + U.RU) 3.15 GR · WUK*, _ ,RHW 1 ·3.16 ln GRF' tr + 1n PUK' 3.17 ln GRRC' · tr + 0,81 ln PUK' · (d) Indirect taxes 3.18 TTC' "'· TC1,C' + TC2,PUK' - TSC' 3.19 1n TTRTS' · tr + 0,25 1n WGS' + 0.60 1n wcs:1 3. 20 1n TSPG' · tr · l·,O 1n QUI< + 1.0 ln PUK' (e) Property income and debt interest 3.21 1n TPPG' · tr + ln QUI< + ln PUK' - -3.22 3.23 3.24 3.25 3.26 NG' J RI ln NGC' BG' YG' - 33-- .. tr + 0.5 [RI(BG' + ADR')- NDRl - NDR' - NGC' + NGC'_1· J+ 0.5 [RI_1 (BG'-l + ADR'_1) - NDR'_1 + NG'_1 .. tr + 0.7 RIF- 0.15 (RX- RX_1) · tr + ln PUK' 11! CGP" + CGS" + IG" + SG' - YG'. + AGP' - TKK.PUK' a TTW' + TTH' + TTR'+ TF.PUKF' + TPNS' - GRH' - GRF' - GRRC' - GRRI.PUK' + TTC' + TX.X' + TGS.CGS' + TCGP.CGP.PtJ + TI(IPUK' + MNSUK'.+ IG.PUK') + TRNS' + TTRTS'- TSPG' + TMA.MA.PMA' + :TMB.MB.PMB' + TMS,MS.PMS' + TMM(MMUK.PMM' + MMNSF') + TPPG' - NG' ADR' AGP' ARD' BG' C' CGP CGP" CGS CGS' CGS" EE EGS EGS * EH GR GRF' (ex) Debt rolled over (£m) (ex) Public sector asset transactions (borrowing requirement less financial deficit)(£m) {ex) Value of capital allowances other than first year and initial allowances (£m) (3.25) Public sector borrowing requirement (£m) (1.2) Consumers' expenditure (£m) (ex) Public current expenditure other than public services (£1970m) (3. 6) Public current expenditure other than public services (£m) (3.2) Public services expenditure (£1970m) i.e. wages and salaries on current account. (3.4) Public services expenditure (£m at full cost) (3.5) Public services expenditure (£m at market prices) (5.3) Employees in employment (th. persons) (3.1) Public service employment (th. male full-time equivalents) (ex) Exogenous component of public service employment {th. male full-time equivalents) {ex) Recipients of household grants (excluding unemployed), in pensioner-equivalents (th.) (3,15) Average pension (£th. per annum) {3.16) Current government transfers abroad (£m) - GRH' (3,14) Household grants, i.e. social security payments plus student maintenance grants (£m) GRRC' (3.17) Other current grants to private sector (£m) GRRI (ex) Capital grants to private sector (£1970m) IG (ex) Public fixed investment (£1970m) IG" (3. 7) Public fixed investment (£m) IPUK' IPUK" (1.5) (1.4) Private fixed investment, excluding North Sea (£m at full cost) ~ Private fixed investment, excluding North Sea (£m at market prices)· . MA.PMA' (ex;2.14) Value of imports of food, drink and tobacco (£m) MB.PMB' (2.6;2.15) Value of imports of basic materials (£m) MMNSF' (4,10) Value of North Sea imports of capital equipment from abroad (£m) MMUK,PMM' (2.8;2.17) Value of business sector imports of finished manufactures (£m) MNSUK' (4,12) Value of North Sea imports from UK (£m) MS.PMS' (2.7;2.16) Value of imports of semi-finished manufactures (£m) NDR' (ex) Interest saved from current debt redemptions (£m) NG' (3.22) Public sector net payments of dividends and debt interesr (£m) NGC' (3.24) Public sector receipts of interest and dividends (£m) NR' (1.11) Private sector receipts' of interest and dividends from public sector (£m) PUK' (7.1) Price of business sector domestic sales (defl) PUKF' (2,26) Private property income and private transfers paid abroad (excluding North Sea profits paid abroad)(£m) PRUK' (1.10) Gross private profits in UK business sector (gross trading profits of companies, income from selfemployment, and rent, after stock appreciation)(£m) QUK (9.1) UK business output (£1970m) RHW (ex) Relativity between pensions and average earnings (ratio) RI (3.23) Minimum lending rate (previously bank rate), average for the year RIF (ex) Eurodollar interest rate, average for the year RU (ex) Relativity between average benefit paid to the_unemploye and average pension (ratio) RWGSUK (ex) Relativity between public service and business sector av~rage earnings (ratio) - - 35 - RW1 (ex) Effective rate of initial investment allowances (ratio) RW2 (ex) Proportion of private sector stock appreciation which is subject to tax (ratio) RX (ex) Effective exchange rate. in weighted average foreign currency per unit sterling (index) S' (8.2) Total stockbuilding (fm) SAP' (8.4) Private sector stock appreciation (fm) SG' (3.8) Public sector stockbuilding (fm) SP' (8.3) Private sector stockbuilding (£m) TCl (ex) Effective rate of sales tax on income-elastic consumption goods (ratio) TC2 (ex) Real yield of other sales taxes on consumption (£1970m) TCGP (ex) Effective rate of sales tax on public current expenditure excluding public services (ratio) TF (ex) Effective rate of tax on private property income and transfers abroad (ratio) TGS (ex) Effective rate of indirect tax on public services expenditure (ratio) TH (ex) Effective rate of direct tax on household grants (ratio) TI (ex) Effective rate of sales tax on UK investment and sales to North Sea (ratio) TKK (ex) Revenue from capital taxes (£1970m) TMA (ex) Effective rate of protective duty on imports of food, drink and tobacco (ratio) TMB (ex) Effective rate of protective duty on imports of basic materials (ratio) TMM (ex) Effective rate of protective duty on imports of finished manufactures (ratio) ,. TMS (ex) Effective rate of protective duty on imports of semi-finished manufactures (ratio) TPNS' TPPG' (4.15) Revenue from Corporation Tax and Petroleum Revenue Tax levied on North Sea profits (£m) (3.21) Gr~ss trading surpluses of public corporations and other public enterprises and public sector rent (£m) TRNS' (4.13) ·Revenue from North Sea royalties (£m) TRR (ex) Effective rate of direct tax on property income (ratio) - 36 - TSC' (ex) Subsidies on consumers' expenditure (ratio) TSPG' (3,20) Subsidies to public corporations (£m) TTC' (3.18) Net sales tax revenue on consumers' expenditure (£m) TTH' (3.11) Direct tax on household grants (Em) TTR' (3.12) Direct tax (including national insurance contributions paid by the self-employed) on property income (£m) TTRTS' (3.19) Local authority rates (£m) TTW' (3.9) Direct tax and nationai insurance contributions (employees' and employers') on income from employment (Em) TWl (3,10) Average tax value of income tax allowances per employee (£th) (ex) Effective marginal direct tax rate on income from employment (ratio) TX (ex) Effective rate of sales tax on exports (ratio) u (5,5) Numbers employed (th.) WBUK' (6. 10) Income from employment in business sector (£m) WGS' WUK* · (3.3) (6.1) Average money earnings per male full-time equivalent in public service employment (£th per annum) Standard average money earnings per male full-time equivalent in business sector employment (£thper annum) X' (2,21) Exports of goods and services (Em) YG' (3.26) Public sector disposable income (£m) YRT' (3.13) Taxable property income (£m) - ,- - 37 - 4. The North Sea The North Sea accounts are constructed in accordance with the principles described in Economic Policy Review No,l, Ch.4. The volume of production of North Sea oil and gas, together with operating costs and imports of capital equipment, all expressed in real terms, are projected exogenously on the basis of latest available information,.based mainly on the work of Martin Lovegrove of Wood-Mackenzie, Edinburgh, The average price of North Sea production is projected to move in tine with the price of imported fuels, ·but taking into account a composition effect as the proportion of oil (which has a higher price per ton coal equivalent than gas) in total production rises, Royalties are assumed to be levied at 12~% of total sales, North Sea output at current factor cost is defined as sales less operating costs less royalties, and forms the base on which taxes within the ring fence (Corporation Tax and Petroleum Revenue Tax) are levied, Post-tax profits paid abroad and to the UK are projected on the basis of assumptions about the distribution of future production and profits between domestic and foreign companies. Balance of payments capital inflows are projected in real terms and converted to current prices using the deflator for North Sea imports of capital equipment from abroad. Other relationships shown below are required to generate various accounting magnitudes used elsewhere in the model to define fully the disaggregation of production between the North Sea, public services and the business sector. - - 38 - Eguations 4.1 QNS 4.2 ln PNS" · XNS - MVNSUK - MVNSF · tr + ln ~MF' (1+~~ 4.3 XNS" · XNS.PNS" 4.4 ln PVNSUK" · tr + 1n PMV' &wsr.4.5 MVNSUK" · MVNSUK. PVNSUK" -4.6 1n MVNSF" · tr + 1n ~VN~UK"]. 4.7 1n PMNSUK' · tr + ln PUK' 4.8 MHNSUK" · MMNSUK. PMN\SUK' (1 + T~) ,, ""; 4.9 ln PMNSF' · tr + ln PMM' 4.10 MMNSF' 4.11 MNSF' 4.12 MNSUK' 4.13 TRNS' ·4.14 QNS' · MMNSF,PMNSF' · MVNSF" + MMNSF' · (MVNSUK" + MMNSUK") I (1 + TI) · 0,125 XNS" ·· XNS" - MVNSUK" - MVNSF" - TRNS I 4.15 TPNS' 4.16 PNSUK' 4.17 PNSF' 4.18 ln KFNS' · PNS.QNS' · SNSUK.QNS' (1 - PNS) 5 QNS' · TPNS' - PNSUK' · tr + ln ~MNSP' (1 + TMM~ .. ·· .'' ·.:~" ~' ..;. ' 6. KFNS' (4.18) North Sea inflows on balance-of-payments capital account (fm) MMNSF (ex) North Sea imports of capital equ"ipment from abroad (£1970m) MMNSF' (4.10) North Sea imports of capital equipment from abroad (fm) . MMNSUK (ex) North Sea imports of capital equipment from UK (£1970m) . MMNSUK" (4, 8) North Sea imports of capital equipment from UK (£m) .MNSF' (4.11) Total North Sea imports from abroad (Em) MNSUK' (4.12) Total North Sea imports from UK (Em) MVNSF (ex) MVNSF" (4.6) North Sea imports of services from abroad (£1970m) North Sea imports of services from ah ,..,"~..~ (tn1 ~ . - 39 - · MVNSUK. (ex) North Sea imports of services from UK. (£1970m) MVNSUK"(4.5) North Sea imports of services from UK (£m) PMF' (2.20) Price of imported fuels (excluding protective duties) (defl) PMM' (2.17) Price of imports of finished manufactures to business sector (excluding protective duties)(defl) PMNSF ' ( 4. 9) Price of North Sea imports of capital equipment from abroad (excluding protective duties)(defl) PMNSUK.' (4. 7) Price of North Sea imports of capital equipment from UK. (excluding UK. sales tax)(defl) PMV' (2.18) Price of imports of services to UK. business sector (defl) PNS (ex) Rate of direct tax (Corporation Tax plus Petroleum Revenue Tax) on North Sea profits (ratio) 'PNS" (4.2) Price of North Sea sales of oil and gas (including royalties) (defl) PNSF' (4.17) North Sea profits paid abroad, after tax (£m) PNSUK.' (4.16) North Sea profits paid to UK., after tax (£m) PUK' (7.1) Price of business sector domestic sales (defl) PVNSUK." (4, 4) Price of North Sea imports of services from UK (including UK. sales tax) (defl) QNS (4. 1) Gross domestic product of the North Sea (£1970m) QNS' (4.14) Gross domestic product of the North Sea (fm at factor cost) SNSUK. (ex) Share of post-tax North Sea profits paid to UK (ratio) TI (ex) Effective rate of sales tax on UK investment and sales to North Sea (ratio) TMF (ex) Effective rate of protective duty on imports of fuels from abroad (ratio) TMM (ex) Effective rate of protective duty on business sector imports of finished manufactures from abroad (ratio) TPNS' (4.15) Revenue from Corporation Tax and Petroleum Revenue Tax levied on North Sea profits (ratio) TRNS' (4.13) Revenue from North Sea royalties (£m) XNS (ex) North Sea sales of fuels to UK (£1970m) XNS" (4.3) Nllrth Sea sales of fuels to UK (£m) - - 40 - 5. Employment Total employment is disaggregated into two categories corresponding to the production sectors of the model t public service employment and employment *in the business sector. Levels of employment in each of these sectors are measured in terms of male full-time earnings equivalents in order to allow ~or changes in the composition of emPloyment : this procedure is followed to simplify the determination of the overall_wage and salary bill, which can be obtained for each sector as employment multiplied by average earnings per male full-time equivalent. The conversion factor for numbers of persons relative to earnings equivalent employment· is positively related to variations in business output, reflecting increased absorption of female and part-time employees at high levels of activity. The equation for business employment is derived as a reduced form from the following underlying relationships (together with a term for the effects of SET in the past) : ln EUK - ln EUK_1 = A(ln EUK* - ln EUK_1) where LUK = 0-·L.9,..4.,......,.RE-- - EGS * = supply of labour to business sector (in full-time earnings equivalents) The model incorporates an adjustment process for actual to desired business employmentJ EUK*, with desired employment determined in relation to output and the pressure of demand, following the hypothesis put forward by Godley and Shepherd. + Labour supply enters in such a way that * North Sea labour costs are treated as part of imports of services produced in the UK business sector, to which is therefore attributed employment in the North Sea. + Long-term growth and short-term policy, N.I.E.R. August 1964, actual productivity in the medium-term varies about its long-term trend (4% per annum) in response to changes in the pressure of demand. (81 = 0.6). The supply of labour enters into productive potential on a one-for-one basis, (that is, 82 = 1). In the expression for LUK, business sector labour supply, the coefficient 0.94 adjusts the conversion factor for employees, RE , to a conversion factor for employees and self-employed. Employment in public services is exogenous, apart from a small component related to the level of unemployment (see section 3). The expression for unemployment incorpora~e~ a marginal propensity to register as unemployed which varies inversely with the pressure of demand for labour in the economy, that is au 3EE = -1.38u 1-EE-EESE - ... Equation_! 5.1 ln EUK = tr- 0.0175 SET' + 0.36 ln QUK + 0.24 (L/(0,94 RE) - EGS*) + 0.4 ln EUK_ 1 5.2 ln RE = tr + 0,06 ln QUK 5.3 EE 5.4 EGS (EUK + EGS), RE a EGS * + 0,1 U 5.5 ln U = ~3.829 + 1.38 ln (L - EE - EESE) EE (5,3) Employees in employment (th. persons) EESE (ex) Self-employed (th, persons) EGS EGS * (5.4) (ex) Public service employment (th. male full-time earnings equivalents) Exogenous component of public service employment (th. male full-time earnings equivalents) EUK (5.1) Employment in UK business sector (th. male full-time earnings equivalents) · L (ex)~· Total labour force (th. persons) QUK (9. 1) UK business output (£1970m) RE (5. 2) Relativity between numbers of persons and male ful1-time earnings equivalents (ratio) SET'' (ex) Rates of Selective Employment Tax (index) u (5. 5) Unemployment (m< wholly unemployed, excluding school leaver: and adult students, annual average o f monthlY f ~. gures) (t1 ,, --- - 42 - 6. Earnings This section describes the determination of average earnings and the wage and salary bill in the business sector : income from employment in public services is discussed under the Public Sector (section 3). Standard (cyclically-adjusted) weekly earnings per male full-time employee (WUK* ') depend on a weighted_average of current and lagged values of wages at settlement for manual and no~-~anual employees. Adjustments are made for the effects of changes in normal weekly hours and of unconsolidated cost-of-living and threshold payments, The trend coefficient in the equation represents regular additional increases in earnings (about 2% per annum) due to wage drift and structural changes in employment. The construction of a wage settlement index for manual employees is described in detail elsetvhere. *. This index is scaled to be equal to standard weekly earnings (excluding all threshold payments) in 1974. The weights used in combining current and lagged values of this index to give standard weekly manual earnings vary as part of the adjustment of wage deteroination to changes in the rate of inflation, so that an increase in the rate of inflation increases the weight attached to current wage settlements. The weights also take into account the average time between settlements, the proportion of ~10rkers covered by wage settlements in the year, and the bunching of settlements at certain times during the year. The weights for manual employees are obtained by a detailed analysis of a large amount of information about individual settlements. Similar information is not available for settlements covering groups of non-manual employees, It 1s assumed that the same settlement index is appropriate for these employees, but the weights are defined in terms of the broad relationships underlying the con-·struction of weights for manual em~ployees, described by a single factor, namely the average time between settlements for non-manual employees. * EP,R No. 2, Chapter 2. - - 43 - Themctors which.ent~r into the weights (RWSA) describe the aggregate ·frequency of settlements. and depend on the rate of inflation, but also on other factors influencing the process of wage bargaining, such as incomes policies. Thus, in the future, the aggregate- frequency of settlements (described by RWS and L.WS) are made conditional on the assumed nature of incomes policies. . The level of money wage settlements is assumed to be set, under conditions of free collective bargaining, by attempt~ to achieve a particular real disposable wage at the settlement date, allowing for the lag between the date .. of settlement and the date of impleme~tation of wage awards. The operation of incomes policies is assumed to determine the level of money wages at settlement, with the real value of the wage bargain under these circumstances emerging as a consequence of inflation and fiscal drag*. The feasibility of incomes policies can then be assessed on the basis of their consequences for real post-tax wages. Gross income from employment is derived from standard weekly earnings and level of employment, together with an adjustment for cyclical variatiors in earnings associated with changes in hours worked and other premium payments · . * *This may be achieved by treating money wages at settlement (WS ') as_ a target and the real value of the bargain Gm**) as an instrument (see above, p ·. 8 ) · - 44 -. · Equations 1RWSA.ws*~_ ]6.1 ln WUK*' · tr + tn [to.68 [cl-RWSA) ws*· + + RNMM.0.32 - 1Jl J[~~SN - 0.~ .ws*· + (~.5 L~SN) ws*· _ + WCLA*' 1 -o....6 ln NH 6,2 WS*' 6.3 PC" "" WD** 0.75PC" + 0.25PC"_1 1- 0.75TW- 0.25TW_1 · C" I c 6.4 % PC" 6.5 TW 6.6 RWSA 6.7 RWS 6.8 RLWS 6.9 LWS 6.10 WBUK' · PC" /PC"-1 - 1 = TTW'/(CGS' + WBUK') .. !! RLWS + RWS ~WS (1 - LWST) - RLWS - ! + LWSTJ tr + 3, 0 %PC11 tr + LWST_1 - 0,35 RWS_1 Jtr - 2.25 %PC" - 0,25 RHS_1 :: - *, EUK. WUK ru~_U.K.BE.P~ o. 4 c (1. 3) Consumers' el-:penditure (£1970m) C" (1, 1) Consumers' expenditure (£m) CGS' (3. 4) Income ·from employment in public services (£m) *EP (ex) Trend labour productivity (£1970 th) EUK (5 .1) Employment in m< business sector (th, male full-time equivalents) LWS (6. 9) Average time since last settlement for.groups lilf manual workers having a settlement in the current year (years) LtlSN (ex) Average time since last settlement for groups of nonmanual workers having a settlement in the current year (years .:., LWST (ex) Average date of settlement within the year for manual workers (n~easured as time to the end of the current year (years) NH (ex) Normal \·7eekly hours worked by male manual employees in all industries and services, excluding public sector (index, 1956=1) PC" (6.3) Price of consumers' expenditure (defl) L - - 45 - %PC" (6.4) Inflation of consumer prices (ratio) QUK (9.1) Business sector output (£1970m) Rm1M (ex) Ratio of non-manual to manual average earnings RLWS (6.8) Average time since the last settlement for those manual workers not settling in the current year (measured to the middle of the year) (years) RWS (6.7) Proportion of manual ·workers covered by settlements made in the current year (~ncluding more than one settlement where appropriate) (ratio) Rl-J"'SA (6. 6) The l-7eights given to settlements for manual workers in the previous year (ratio) TTW 1 (3.9) Direct taxes end national insuran~e contributions on '· income from employment (£m) TiT (6 .5) Effective direct ta~ r&te on income from employment (ratio) WBUK 1 (6.10) Incoma from e·mploym~nt in UK business sector (£m) i~ WCLA '(ax) Average annual unconsolidated cost-of-living and threshold payments per male full-time employee (£ th per annu **WO (e:::) Real value of tvage bargain (£1970 th per annum) *~IS I (6. 2) *WUK. I (6 .1) Levc~ of money earnings at settlements (£th,per annum) ·~ Standard weekly money earnings pe~ male full-time employee in UK business sectoT (£th per annum) '· 7. Prices - 46 - The basic price variab~e used in the model is the pri~e of business sector domestic sales at full cost (PUK'). This is defined as the ratio of consumers' expenditure plus public current expenditure (excluding public services) plus public and private fixed investment (excluding the North Sea), all measured at current full cost, to. the sum of the' equivalent items measured ~ at co~staut factor cost. Movements in this average price thus reflect move~~nts in taxes on business sector inputs - rates, protective import dutie~ ·less subsidies to public corporations - as well as i.n costs of domestic factot· inputs and in ir~ort prices themselves. .Average market prices of the various com~onents of _domestic sales are derived where necessary by applying the appropriate sales tax rate to the full cost price · The original volume . series at factor cost which are used to generate the average full cost price for past yea-rs, and lvhich embody different implied full cot>t prices, are replaced in the model by series which are inclusive of the relative price effect, i.e. uhich share the same full cost .price · .The price of domestic sales is assu1u~d to be dete1:mined on a cost-plus . * .basis in a form lvhich f:;eneralises the Normal Price HypotheHs about pn.ce forrestion in ~~nufacturing to the economy as a whole. Thus prices are set as a z:::r::-!~"·up on historic normal unit costs, "t-:h:::rc historic costs are s:i a lagged ft'.nction of current costs, wil:h an aver<~ge lug of about one quartc · CuLrcnt coGta nTe c~p?eGsed as a weighted average of an ind0x of .domestic costs pe~ unit of normal business output and an index of import costs per unit ci imports, with the weights being actual business output and actual imports resp2ctively. * Godley and Nordhaus, Econor.d_c Jom:nal, September 1972, and Cout ts, Godley and Nordhaus, 7i7he Determination of Prices in ill!: H::n-tufacturing Industry, fm:-thco::ll.i!"tB~ Dlill mono;jr:lph, - 47 · Domestic cost~ comprise.labour costs per unit of normal output, expressed as standard money earning· per ·male full·~i~ employee divided by trend productivity, to&ether with rates, farm profits, private rents, less subsidies to public corporations, all expressed per·unit of normal output. Rates and I I subsidies to public corporations ate those indirect taxes which are treated as leYied on do~stic pri~ry inputs; · farm profits are included to take account of the fact that prices of do~atic agricultural-product~ are not set on.a c~st-plus bmsis, but ·$re l~rsJly det(ll~n~d by EEC polictes, so ·that domestic <. ·farm prices and profit:s ··are .related to pri'ees ·of food ·imports, the effect of ·. . I. ·which··ia eX"plicitly incorporated in the equation for farm profits. Private rents at~ includ~d as &n additional item entering into business costs, and are projectGd to ~va partly in line with inflation. All domestic costs ( ,; are ezpre~Ged per unit of normal output in conformity with the Normal Price Hypothesis, n~ly that ~irma set prices in relation to normal, rather than Normnl output and -trend productivity are both defined by "logarithmic trends ·, :· Import costQ consist of the average cost of imports to the business sector, including protective duties on imports and the cost of purchases of fuels from the North Sea : exports of fuels from the North Sea are excluded as not affecting businass coats or prices except for an assumed profit margin of '· 20%. Fitted to the period 1962-74. - 4o- Equations 7.1 ln PUK' · tr + ln RC* 7.2 RC* 7.3 cc* [ .· 0,7 cc· + 0.3 cc*-1 · DC DC*1970 QUK +MC-* MC*l970 MXUK} (QUK + MXUK) 7.4 .MXtJK 7.5 DC* · MUK + XNS - XF . WUK*' TTRTS' - TSPG' + PRAG' + TRNTS' 11 EP* + QUK*· 7.6 MC* MUK" + XNS" .. 0.8.XF.PXF' ·Ill MXtn<. ~~1 TMA~7. 7 ln PRAG' · tr + 0,8 ln PMA' + 7.8 ln TRNTS' · tr + 0.6 ln PUK' CC* (7. 3) Current full cost per unit of sales (defl) DC* (7.5) Domegtic costs per unit of output (defl) EP* (ex) Trend labour productivity (£1970th) \. RC* (7 .2) Historic full cost per unit of sales (deft) MC* (7. 6) Import costs per unit of imports MUK (2.11) Tot·al imports of goods and services to UK business sector (Ef970m) MUK" (2;23) Total imports of goods and services to UK business sector (f.m) MXUK (7.4) Business sector purchases from North Se~ and abroad, less exports of fuels (£1970m) PMA' (2 .14) Price of. imports of food, drink and tobacco (defl) PRAG' (7.7) Incoma from self-employment and other trading income in agriculture, forestry and fis.hing (£m) · PUK' (1,1) Price of business sector domestic sales (defl) PXF' (2.19) Price of exports of fuels (defl) QUK (~.1) Business sector output (£1970m) -- - 49 - QUK* (ex) Trend value of business sector output (£1970m) TMA (ex) Effective rate of protective duty on imports of food, drink and tob~cco (ratio) TRNTS' (7.8) Private rents (£m) TSPG' (3,20) Subsidies to publi~ corporations (£m) TTRTS' (3.19) Local authority rates.(£m) .WUK*' (6 .1) Standard av~rage earnings in business sector (£ th per annurr XF (ex) Exportsof fuels (£1970m) XNS (ex) North Sea sales of fuels to UK (£1970m) XNS" (4, 3) North Sea sales of fuels to UK (£m) - 50 - - 8. Stockbuilding and stock appreciation Total stockbuilding ~n volume terms is expressed in the form of a G_Onventional cyclical adjustment relationship to current and lagged changes in real output, The constant and trend terms currently used in the equation imply a slow do~mward trend in the stock-output ratio. (The average price .of additions to stocks moves in line with the historic cost of sales, and . .this rel~tionship is used to generate stockbuilding at current prices · Private and public s~ctor stockbuilding at current prices are required to complete the private and public sector income-expenditure accounts; private· stockbuilding is obtained as approximately 92% of the total, and public stockbuilding as a residual. Stock appreciation in the private and public sectors is in each case obtained from the difference between busi~ess sector final sales measured at current and historic full cost. !:;Iuaticns 8.1 s = tr + 0.44 (QUK- QUK_1) + 0.27 (QUK_1 - QUK_2) 8.2 S' = tr + S. HO: 8.3 SP' = tr + 0.92 S' 8.4 SAP' = tr + 0.92 (CC* - HC*)(QUK + XNS + 'HUK) 8.5 SAG' = tr + 0.08 (CC*- HC*)(QUK + XNS + MUK) CC* (7. 3) Current full cost per unit of sales (defl) HO': (7..2) Historic full cost per unit of sales (defl) MUK (2. ll) Total imports of goods and services to UK business sector (£1970m) QUK (9 .1) Busincos sector output (£1970m) s (8.1) ·Stockbuilding (£1970ra) SAG' (8. 5) ·Public sector stock appreciation (Em) SAP' (8.4) Private sector stock appreciation (£m) -·51- SP' (8,3) Private sector stockb~ilding (£m) S· (8 1 2) Stockbuilding (£m) XNS (ex) North Sea sales of fu~ls to UK (£1970m) - - - 52 - 9. GDP identities The first two of these, QUK and QUK', determine business sector outpu~ at constant' and current factor cost respectively. The output of the North Sea and public services is added to business sector.output to obtain gross domestic product (co~lromise) on the conventional Blue Book defini.tion, *i.e. , Q and Q' · Equations 9.1 QUI< s C ~- CGP + IPUI< + IG + HVNSui:< + ~,INSUK + X + S - XNS - MUK 9 . .? QUK' E (C + CGP + IPUK + IG).PUK' + MNSUK' +X' + S ' - XNS"- MUK" ;.. TTRTS ' + TSPG' 9.3 Q 9.4 Q' ~ QNS + CGS + Qlli< G QNS' + CGS' + QUK' c n.3) ConsuLcrs' expenditure C£1970iu) CCP (ex) · Pu.bHc current expenditure other than public services (£1970::1) CGS (3, 2) Public services eXTJenditure (£1970m) IG (ex) Public fixed invest;ue.nt (£l970m.) IPDi( (1. 6) Priv<::H:e fi.~"ed inve.st1.:.ent, c::~ch:..:ling North Sea (£1970m) 1·[~13\JX. (e:~) NQ!..'th Se.a ic·;;o:::ts of c.zpi t d equi~:-Jent from UK (£1970m) h1~SU::<' (l1.12)Totd l{os:th Sea imports from U::Z (£m) MUK (2 .11) Tota.l iWi)o!:.·ts of goods c:1d services to {);{ business scct0-.: (.: 19 70::.) hlJK" (2. 23) I' :w:.l:WUK (ex) Tota.l ll:'~o;:-;~s of g::1ods 2nd services to UK business cector (£w) No:r:t(l s~a h:·:}orts of cervices fro·.n UK (.Ll970m) --~---------~---------- * 'I'i1e resid~tal en:or bC!t"·e:en compro:r,i::z ~mu e:.-:1,.._;nd1. turc estimates of G_D2 is <::llocatcd to -priv.:t.te stoc:~t-uil-:l:L1g (SP 1 ) C:..!!d the error between compromis3 and iw::o;,~~ estir.::::tc::> to r--::-lv-:lte trading incom.a (Pr-UK') - PUIC.'~ (7, 1) . Price of·.'lniainess· eector domestic sales- (defl) Q _(9. 3) Gross domestic product, compromise estimate· (£1970m)· · ~. l Q'· (9,4) Gross domestic product, compromise estimate (£m at factor. cost) QNS (4.1) Gross domestic product of the North Sea (£1970m) QNS' (4.14) Gross domestic product:. of the North Sea (£m at· factor cost) QUK QUK' (9,1) (9.2) Gross domestic produ.ct ol UK business sector (£1970m) · Gross domestic product of UK business sector (Em at factor cost) ·· '"· ·s (8.1) Stockbuilding (£197~) \. S' (8.2) Stcckbuilding (£m) .TSVG' (~,20) Subet4~·; to pq~lic corpOf4~~ons (£m) ,.· ~ / ~ .. : T't'iiS! (3.19) ~o~~~ flUthority rates (Em) X (2.4) Exports .of goods and services (£1970m) X' (2.21) Exports of goods and services (£m) XNS (ex) North Sea sales of fuels to UK (£1970m) XNS" (4. ~) North Sea S4~et' of fuels to· VK .(£;.~) ,, .. ~ -- .I - 54 - Constant and trend coefficients fitted in equations on data for 1962-74(a) as at March 1st 1976 ' Eguation.Number ne:2endent variable I 1. Private e~enditure 1.1 1.4 C'' IPUK" Estimated coefficients Constant Trend -252.408 -890.483 8.436 5.~57 2. Balance of :2a:t!!!ents 2.1 .ln XX 2.5 MF 2.6 MB 2.7 ln MS 2i8 1n MMUK 2.13 1n PXX' 2.14 ln PMA' 2.15 ·1n PMB' 2.16 ln PMS' 2.17 1n PHM' 2.18 1n PMV' 2.19 ln PXF' 2.26 ln PUKF' 2.27 ln PFUK' 2.28 NF' 2.32 (s) KFUK' 2.33 (s) KUKF' 9.500 -235.390 113.011 -3.322 -24.893 0.024 0.048 0.056 0.032 0.125 -0.200 0.036 -3.014 7.243 104.045 -402.530' . 872.147 -0.009 26.629 -32.554 0.054 0.010 -o.004 -0.0004 -o·.oo9 -0.008 -0.012 0.010 ..0.0004 0~043 0.003 0.593 16.733 -121.922 3. Public sector 3.10 3.16 3.17 3.19 3.20 3.21 3.22 3.23 3. 24. 1n TW1 1n GRF' 1n GRRC' 1n TTRTS' 1n TSPG' ln TPPG' NG' RI ln NGC' 2.881 5.123 4.631 6. 726 35.355 -2.836 33.905 0.017 5.212 0.076 0.013 0.112 0.026 0.172 0.009 48.377 0.0001 0.057 - 55 - - ..Eguation Number Deeendent variable 4. North Sea 4.2 (s) 4.4 (s) 4.6 (s) 4.7 (s) 4.9 (s) 4.18 (s) ln PNS" ;,. ln PVNSUK" ln MVNSF" 1n PMNSUK' 1n PMNSF' 1n KFNS' Es tir:~ated coefficients Constant Trend 2.827 0.458 -0.801 -0.539 -0.702 2.837 -0.238 -0.023 0.056 0.053 0.073 0.118 5. Emp1o~ment 5.1 5.2 ln EUK ln RE -0.229 -0.413 -o.014 0.003 6. Earnin~s 6.1 6.7 6.8 6.9 ln WUK*' RWS RLWS Lt.JS -0.395 0.661 o. 756 1.659 0.019 0.001 -0.019 -0.009 7. Prices 7.1 7.7 7.8 ln PUK' 1n PRAG' 1n TRNTS' 0.081 6.475 6.742 0.0009 0.034 0.081 8. Stockbuilding and stock appreciation 8.1 s -366.164 1. 415 8.2 S' -2.036 2.846 {. 8.3 SP' 31.207 -5.586 8.4 SAP' -476.ll0 77.448 8.5 SAG' 9.616 -4.234 (a) (s) after ari' equation number indicates exceptions to this rule, where coefficients were fitted over the period 1967-74.  Dublin Core The Dublin Core metadata element set is common to all Omeka records, including items, files, and collections. For more information see, http://dublincore.org/documents/dces/. Title A name given to the resource Technical Manual on the CEPG Model Creator An entity primarily responsible for making the resource M J Fetherston Source A related resource from which the described resource is derived Technical Manual on the CEPG Model First edition, April 1976 Date A point or period of time associated with an event in the lifecycle of the resource April 1976