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In the first section, the impact of a shift in international demand on the price level of a small and open economy is analysed in the framework of the IS and LM diagram and under the assumption of a fixed exchange rate; only short run implications are derived from the analysis. In this keynesian context, it is shown, in particular, that the monetary policy implemented by a large country like the U.S. plays an important role in the assessment of the static short run impact of a change in international demand on the price level of a small country like Canada. In the second section of the paper, it is shown that a dynamic version of a keynesian macro model allows the rate of growth of prices of a small country to converge to the "international rate of inflation". In the last section, longer term issues are discussed in the context of the Scandinavian model of inflation. In particular, it is shown that a country like Canada with large regulated and para-public sectors is quite vulnerable to external inflationary shocks.
The purpose of this paper is to study the characteristics of the production process in the Quebec economy. We devote particular attention to two features of the technology: the returns to scale and the substitution possibilities.
Two forms of production functions, the Cobb-Douglas and an homothetic translog production function, are estimated for six branches of economic activity. These are: Agriculture; Fishing and Forestry; Mining; Quarying and Oil Wells; Manufacturing; Utilities; Services.
Two main conclusions are derived from this work. First, there is strong evidence of constant returns to scale in all branches of the Quebec economy but services. Second, when comparing the Cobb-Douglas model with an homothetic translog model, the hypothesis that the true model is the Cobb-Douglas one cannot be rejected for five of our six sectors. Therefore, there is evidence that the elasticity of substitution is around one.
Finally a byproduct of our work has been the construction of capital stock series for the Quebec economy (1960-73) disaggregated into 14 sectors, and two types of capital: construction and machinery and equipment.
Input-output analysis was always criticized for its inability to simulate all the effects produced by economic development; induced investment and its impact was notably one of the most serious lack usually noted. The model presented here is an attempt to prove that such a problem might well be solved in the future by introducing an investment function in the analysis at reasonable costs. By the same token, it tries to sell the possibility of taking into account the technological changes that occur in various industrial sectors, in allowing technical coefficients to change accordingly. The authors first briefly describe the economic rationale supporting the necessity of introducing such modifications in the static input-output analysis. Then, using the 1966 Quebec Input-Output table as the basic structure of their model, they formulate what could be presented as a fully dynamic (auto-regressive) model that can simulate the main effects that should be evaluated in an impact study: direct and indirect effects, and effects related to induced consumption and investment. Finally, running the model from a fictious variation in final demand and for a ten-year period, they conclude with the following results: 1°) the introduction of the accelerator increases by about 30% (the figure varies from 65% to 15% during the period) the impact that would have been otherwise obtained with the static model; and 2°) the use of actual technical coefficients (the introduction of technological changes) reduces by 20% the impact that would have been estimated without the modification.
This article is concerned with those aspects of economic policy that are related to macro disequilibrium theory. Central to it is the way by which time enters the latter theory. Clower's dual hypothesis about Keynesian consumption function did not refer to time at all. Clower, Leijonhufvud and Howitt did introduce time in the so-called shopkeeper model, but they neglected the role of stocks. This article suggests the incorporation of buffer stocks in models of general disequilibrium. The method is the one used to endogenize policy reaction functions. Time and stocks are then the two poles around which a consistent view on quantitative economic policy can be formulated.
The goal of this paper is to present an analysis of the problems raised by the financing of the Quebec Pension Plan. In the first step, we shall try to identify the reasons underlying the financing problem. In the second step, we shall deal with the various financing methods and their impact on the level, the structure and the rate of increase of the contributions to the Plan. Finally, we shall conclude on the financing method which, in our view, should prevail.