Prim I: A Model Of The Price And Income Distribution Mechanism Of An Open Economy

PRIM I is a numerical model which has been extensively used as a basis for an income policy in Norway in recent years. It is a static, cost‐push, input‐output model. Wage rates, agricultural prices, productivities and world market prices are treated as exogenous variables, and the model derives short‐term changes in income shares and in the national price level from changes in these exogenous variables. A key feature of the model is a distinction between “exposed industries” which are subject to strong foreign price competition, and “sheltered industries” which are relatively free of such competition. These two groups of industries are found to react with very different pricing policies in response to increases in costs; furthermore, possibly for technological reasons, the export industries have greater scope than the majority of the sheltered industries for compensating cost increases through productivity gains. These two facts are shown to have important implications for a price and income policy. It is demonstrated, i.a. that the goal of a stable national price level is, in general, inconsistent with the maintenance of stable income shares when exchange rates are kept constant.