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Salter Working Paper Number 4

SALTER - A General Equilibrium Model of the World Economy by J. Zeitsch., R. McDougall., P. Jornini., A. Welsh., J. Hambley., S. Brown., and J. Kelly is Working Paper number 4 in the development of The SALTER Model of the World Economy.

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CONTENTS

Preface

William Edward Graham Salter

1 Executive Summary
Removal of Japanese agricultural assistance
Implications of recent oil price rises
Implications for further work

2 The SALTER Model Structure
Regions and commodities
Overview of the model's economic structure
The government sector
The external environment in the SALTER model
Production
Final demands
Trade links between regional models
Economic environments
Adaptations in the short run
Adaptations in the medium run
Adaptations in the long run
Solving the linear system of equations

3 The Benchmark Equilibrium Data Set
Relative size and characteristics of modelled economies
Production and trade structure
Protection database

4 Parameter Setings in the SALTER Model
Elasticities of substitution among primary factors
Trade elasticities in the SALTER model
Substitution between domestic and imported cornmodities
The elasticity of substitution among imports from different sources
Import elasticities by the rest of the world
Consumer demand parameters
The elasticity of labour supply

5 Model Applications
Removal of Japanese agricultural assistance
Background
Summary of assistance measures
Model closure and results
Implications of higher prices for oil and gas
Background
The assumed economic environment
Model results

Appendix A Detailed Model Structure
The production structure
The consumer demand system
The government activities
The other final demands
The market clearing conditions
The price transmission and aggregation equations
The zero profit conditions
The income aggregations
The trade aggregations and balance

Appendix B Updating Regional and Trade Databases
Eliminating changes in stock
Adapting the trade structure
Arriving at a balanced trade database

Appendix C Consumer Demand Elasticities

Appendix D The Elasticity of Substitution between Imports from Different Sources - Estimates for New Zealand
Introduction
Previous work
A CES model of import demand
Data and estimation
Results
Conclusions

References

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