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II. The Mark III International Transmission Model

In: The International Transmission of Inflation

Author

Listed:
  • Michael R. Darby
  • James R. Lothian
  • Arthur E. Gandolfi
  • Anna J. Schwartz
  • Alan C. Stockman

Abstract

This paper presents a summary and estimates of the Mark III International Transmission Model, a quarterly macroeconometric model of the United States, United Kingdom, Canada, France, Germany, Italy, Japan, and the Netherlands estimated for 1957 through 1976. The model is formulated to test and measure the empirical importance of alternative channels of international transmission including the effects of capital and trade flows on the money supply, of export shocks on aggregate demand, of currency substitution on money demand, and of variations in the real price of oil. Major Implications of the model estimates are:(1) Countries linked by pegged exchange rates appear to have much more national economic independence than generally supposed. (2) Substantial or complete sterilization of the effects of contemporaneous reserve flows on the money supply is a universal practice of the nonreserve central banks. (3) Quantities such as international trade flows and capital flows are not well explained by observed prices, exchange rates, and interest rates. (4) Explaining real income by innovations inaggregate demand variables works well for U.S. real income but does not transfer easily to other countries. The empirical results suggest a rich menu for further research.
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Suggested Citation

  • Michael R. Darby & James R. Lothian & Arthur E. Gandolfi & Anna J. Schwartz & Alan C. Stockman, 1983. "II. The Mark III International Transmission Model," NBER Chapters, in: The International Transmission of Inflation, pages 83-84, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberch:6125
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    Cited by:

    1. Rudiger Dornbusch & Stanley Fischer, 1986. "The Open Economy: Implications for Monetary and Fiscal Policy," NBER Chapters, in: The American Business Cycle: Continuity and Change, pages 459-516, National Bureau of Economic Research, Inc.
    2. Stephen G. Cecchetti & Peter Hooper & Bruce C. Kasman & Kermit L. Schoenholtz & Mark W. Watson, 2007. "Understanding the Evolving the Evolving Inflation Process," Working Papers 2007-4, Princeton University. Economics Department..
    3. Obstfeld, Maurice, 1983. "Exchange rates, inflation, and the sterilization problem: Germany, 1975-1981," European Economic Review, Elsevier, vol. 21(1-2), pages 161-189.
    4. Jaime R. Marquez, 1985. "Money demand in open economies : a currency substitution model for Venezuela," International Finance Discussion Papers 265, Board of Governors of the Federal Reserve System (U.S.).
    5. Michael R. Darby, 1980. "Does Purchasing Power Parity Work?," NBER Working Papers 0607, National Bureau of Economic Research, Inc.
    6. Michael R. Darby, 1981. "The Real Price of Oil and the 1970s World Inflation," NBER Working Papers 0629, National Bureau of Economic Research, Inc.
    7. Sebastian Edwards, 1983. "Money, the Rate of Devaluation and Interest Rates in a Semi-Open Economy: Columbia 1986-1982," UCLA Economics Working Papers 316, UCLA Department of Economics.
    8. Anthony Cassese & James R. Lothian, 1983. "The Timing of Monetary and Price Changes and the International Transmission of Inflation," NBER Chapters, in: The International Transmission of Inflation, pages 58-82, National Bureau of Economic Research, Inc.
    9. Michael R. Darby, 1980. "Sterilization and Monetary Control under Pegged Exchange Rates: Theory and Evidence," NBER Working Papers 0449, National Bureau of Economic Research, Inc.
    10. Carr, Jack & Darby, Michael R., 1981. "The role of money supply shocks in the short-run demand for money," Journal of Monetary Economics, Elsevier, vol. 8(2), pages 183-199.
    11. Darby, Michael R, 1982. "The Price of Oil and World Inflation and Recession," American Economic Review, American Economic Association, vol. 72(4), pages 738-751, September.

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