MacSim 2 : a computer package for teaching international macroeconomics

To teach international macroeconomics using simulations of a multi-country model. Note : This is a new presentation from the one in Prague which met technical problems. The Macsim 2 package allows to simulate shocks on a set of countries linked by trade flows, using various assumptions on the interest and exchange rates. Its goal is mostly teaching international macroeconomics, but it can be uesed also as a policy tool. The countries treated are, in alphabetical order : Belgium, France, Germany, Italy, Japan, Luxemburg, Nederlands, United Kingdom, USA, plus an artificial grouping of the remaining EMU-12 elements (Austria, Finland, Greece, Ireland, Portugal, Spain) , and a sketchy Rest of the World. Each model includes the main usual economic mechanisms describing : The production function : Cobb-Douglas, with an explicit impact of the relative cost of labor and capital on their role in production. Unemployment, depending on employment and the potential work force. A price block, with wages depending on inflation, productivity and unemployment, the GDP deflator on the wage cost and the rate of use of capacities, and trade prices on local cost and competitors prices. Household consumption and change in inventories are also included. The trade between countries is treated as follows : First global imports are defined, depending on foreign demand to the country, available local capacities (compared with foreign) and local price competitiveness.. Then imports are shared between providers, using a predefined share modified again by a comparison of their rates of use and price competitiveness, Both the interest rate and exchange rate can be set to follow specific rules : nominal fixed, real fixed and Taylor rule for the first, nominal fixed, real fixed and uncovered interest rate parity for the other. Of course, EMU countries follow ECB defined rates. But a risk premium is applied to the individual interest rates. The package itself provides a base solution, to which the user applies shocks on the external environment and the State policy, for a specific country or a set. Decisions are made at the beginning of the year, and applied over it. Comprehensive results are presented in tables and graphs. A global function computes the efficiency of policies, depending on the usual elements : GDP growth, inflation, State and Trade balances. This allows to use the package as a game, with a variable number of players. Two examples of the process will be presented as a second part.