Modeling experience and economic data availability in Macedonia

Modeling experience and economic data availability in Macedonia Jean-Marc PHILIP Université de la Méditerrannée France Email (jean-marc.philip@univmed.fr) Presentation in Skopje March 2010

"Everything should be made as simple as possible, but not simpler." Albert Einstein « Une œuvre où il y a des théories est comme un objet sur lequel on laisse la marque du prix.» Marcel Proust. (A work with theories is like an objet upon which brand price is left) « For all interesting questions in economics, the only good answer is: it depends. » Thomas Rutherford

Topics of presentation • Data availability issue for building an energy-economic framework ; • Framework of a Social Accounting Matrix elaboration following the business intelligence (BI) approach; • Building the Social Accounting Matrix for Macedonia (2000 and 2004); • Building a Calculable General Equilibrium Model equations for a “green growth” policy in GAMS-MPSGE.

Data availability issue in the economic field • More and more data available, today data availability is less an issue  data management and analysis becomes a problem. • Easier data collection thanks to improved technologies and standardised data collection methodologies (web, email, etc.) • Production of synthetized reports of aggregated data (input-output tables, make and use tables, expenditures and resources, national accounts, consolidated budget, balance of payments, etc.) • How can data originating from heterogeneous environments be collected, aggregated and analyzed ? • Can political deciders easily understand quantitative information provided ?

The Social Accounting Matrix • SAM represents transfers in values between institutional agents and sectors; • A SAM is a comprehensive, disaggregated, consistent data base that captures the interdependence that exist within a socio-economic system; • The SAM is a coherence tool (e.g. in the SAM the data are organised and viewed in a global and consistent way). Hence : • The SAM is a “decision tool” by itself and may be seen as the most important “dashboard” for the government. • SAM should be updated yearly in order to analyse transfers’ evolution between agents

Basic requirements of a SAM • Factor and product markets equilibrium (supply = demand) • Budget constraints: for each agent: total income = total expenditure • Macroeconomic Balance: Saving = Investment • Assets = Liabilities. SAM is generally built by institution (consultant) elaborating the CGE model. Data are collected essentially from : • - the main macro-economic and financial indicators • - the Supply and Use tables (transformation from “accounting view” to “economic view”) • - the input-Output tables for the different sectors SAM should be built by all concerned institutions (MOF, Central Bank, Ministry of Economy, …) and compiled by the National (or regional) institute of Statistics. The main issue for building a SAM is data extraction, transformation and aggregation (top-down vs bottom-up approach)

ETL main features • ETL is a class of program that manages the transactions to be done between the original tables and the Data Warehouse • The Data Warehouse is updated thanks to the ETL process • BI tools (such as SSIS, SSAS, SSRS included into SQL 2010) can be used, • GAMS is also a good – and free – ETL package.

SAM elaboration for Macedonia • Following the BI approach, the SAM for Macedonia was built in 2007 according to the BI approach (data preparation and ETL) • Data preparation is generally done using the “pivot table” Excel feature (it is not always necessary). • The SAM directly reads its input data from the Input-Table 2000 (available in Excel Matrix format); • Extraction-Transformation and Loading (ETL) was done in GAMS.

CGE modeling • A “standard” CGE model asserts that in a free market, production and demand of goods depend on the market price; • CGE models were initially used by the World Bank for fiscal analysis; • Presently CGE models are widely used for trade analysis (impact of trade agreements, EPA, trade liberalisation, WTO accession, etc.) and energy policies (e.g. energy or carbon taxation).

CGE modeling • More generally, CGE models are more and more used for building « what if » scenarios. • CGE models may also be used for economic forecasting (as they can produce a consistent macro-economic framework for the country) CGE modeling captures a large panel of economic policies and a basic structure can be adapted for different purposes.

What is MPSGE (Mathematical Programming System for General Equilibrium)? • MPSGE is a language/syntax invented by Thomas Rutherford which enables to build CGE models without writing equations • MPSGE model is based on the MCP (Mixed Complementary Problem) approach of the Arrow-Debreu general equilibrium model • prices are calculated from equilibrium • between supply and demand (zero stocks) • quantities are calculated from equilibrium • between “input” and “output prices” (zero profits) • From a “standard version” the • structure a MPSGE CGE model can • be easily adapted to better capture • economic behavior of a specific country (e.g. CES functions, price flexibility, taxes etc.) • MPSGE is available in GAMS.

Main features of a CGE model built for energy policy analysis A dynamic Calculable General Equilibrium (CGE) sectoral model in GAMS/MPSGE with: • 3 production factors (labor, capital and energy) • 6 sectors with energy and non-energy branches • Two markets for factors of production : imports and domestic (different prices) • Various economic agents (households, government, rest of the world) • 6 products : same as sectors (possibility to distinguish sectors and products up to Input-Output table disaggregation).

SAM and CGE model maintenance : • ETL process to build the SAM from Input-Output tables and additional tables using GAMS programming; • CGE model built in GAMS/MPSGE (robustness, easy handling, no algebraic equations); • Elaboration of “what if” scenarios within GAMS • Energy policy simulations can be done through the GAMS IDE interface (GAMS can be also launched from Excel or user interface); • Model results are sent into Excel file, Access or many other DBMS; • Results can be viewed from Excel or any other spreadsheet (such as QlickView)

Annex1: SAM for Macedonia (2000)

Annex2: Equations of the CGE model in GAMS/MPSGE (1) $MODEL:RECURSIF $SECTORS: Y(i,t) ! Output IT(t) ! Investment CTH(t) ! Household consumption CTG(t) ! Government consumption E(ae,i,t)$E0(ae,i) ! Exports by product and by area M(ae,i,t)$M0(ae,i) ! Imports by product and by area Q(i,t) ! Composite goods MT(i,t)$SUM(ae,M0(ae,i)) ! Imports by product ET(i,t)$SUM(ae,E0(ae,i)) ! Exports by product $COMMODITIES: RK(t) ! Return on capital PK(t) ! Price of Capital PL(i,t) ! Wages Rates PN(t) ! Price of energy PC(t) ! Index of consumer prices PG(t) ! Price index for government PM(ae,i,t)$M0(ae,i) ! Price index of imports by area PD(i,t) ! Price index for domestic goods PE(ae,i,t)$E0(ae,i) ! Price index of exports by area

Annex2: Equations of the CGE model in GAMS/MPSGE (2) PMT(i,t)$SUM(ae,M0(ae,i)) ! Index of import prices PET(i,t)$SUM(ae,E0(ae,i)) ! Export price index PQ(i,t) ! Price index for composite goods PFX(t) ! Index of real exchange rate $CONSUMERS: HOU(t) ! PrivateSector GOV(t) ! Government ROW(t) ! Rest of world $AUXILIARY: K(t) ! Capital Stock DTax(ac,t) ! Direct taxes MK(i,t) ! Rigidityconstraint on the composite price PLF(i,t) ! Rigidityconstraint on wages BOP(t) ! Rigidityconstraint on the exchange rate TRF(t) ! Constraint on transfersfrom ROW $PROD:Y(j,t) va:SigmaF(j) t:SigmatZ(j) O:PET(j,t) Q:(SUM(ae,E0(ae,j))) O:PD(j,t) Q:D0(j) I:PL(j,t) Q:F0("lab",j) VA: I:RK(t) Q:F0("cap",j) VA: I:PN(t) Q:F0("ene",j) t:taun(j) a:GOV(t) I:PQ(i,t) Q:CIJ0(i,j)

Annex2: Equations of the CGE model in GAMS/MPSGE (3) $PROD:IT(t) s: sigmaIT O:PK(t) Q:IT0 I:PQ(i,t) Q:Inv0(i) $PROD:CTH(t) s: sigmaH O:PC(t) Q:(SUM(i,C0('Hou',i)-C0_('Hou',i))) I:PQ(i,t) Q:(C0('Hou',i)-C0_('Hou',i)) $PROD:CTG(t) O:PG(t) Q:(SUM(i,C0('Gov',i))) I:PQ(i,t) Q:(C0('Gov',i)) $PROD:ET(i,t)$ET0(i) t:sigmaET(i) O:PE(ae,i,t) Q:E0(ae,i) I:PET(i,t) Q:(SUM(ae,E0(ae,i))) $PROD:MT(j,t)$MT0(j) s:sigmaMT(j) O:PMT(j,t) Q:(SUM(ae,M0(ae,j))) I:PM(ae,j,t) Q:M0(ae,j) $PROD:E(ae,i,t)$E0(ae,i) O:PFX(t) Q:(E0(ae,i)*Pwe0(ae,i)) a:GOV(t) t:taue(ae,i) I:PE(ae,i,t) Q:E0(ae,i)

Annex2: Equations of the CGE model in GAMS/MPSGE (4) $PROD:M(ae,j,t)$M0(ae,j) O:PM(ae,j,t)$M0(ae,j) Q:(M0(ae,j)) I:PFX(t) Q:(Pwm0(ae,j)*M0(ae,j)) a:GOV(t) t:tm(ae,j,t) $PROD:Q(j,t) s:sigmaQ(j) O:PQ(j,t) Q:(Q0(j)/(1-tauz(j))) a:GOV(t) t:tz(j,t) I:PD(j,t) Q:D0(j) I:PMT(j,t) Q:MT0(j) $DEMAND:GOV(t) D:PK(t) Q:(S0('Gov')) P:Pref(t) E:PG(t) Q:(-SUM(i,C0('Gov',i))*Qref(t)) E:RK(t) Q:(spf("Gov","Cap")) R:K(t) * Direct Taxes E:PG(t) Q:(1) R:DTax("Hou",t) * Transferts E:PC(t) Q:(SUM(ag,(Trn0(ag,"Gov")-Trn0("Gov",ag)))*Qref(t)) E:PC(t) Q:(1) R:TRF(t)

Annex2: Equations of the CGE model in GAMS/MPSGE (5) $DEMAND:HOU(t) D:PC(t) Q:(SUM(i,C0('Hou',i)-C0_('Hou',i))) P:Pref(t) E:PQ(i,t) Q:(-C0_('Hou',i)*Qref(t)) D:PK(t) Q:((S0('Hou'))) P:Pref(t) E:RK(t) Q:(spf("Hou","Cap")) R:K(t) E:PN(t) Q:(spf("Hou","Ene")*SUM(i,F0('Ene',i))*Qref(t)) E:PL(i,t) Q:(spf("Hou","Lab")*F0('Lab',i)*Qref(t)) R:PLF(i,t) R:MK(i,t) * Direct Taxes E:PG(t) Q:(-1) R:DTax("Hou",t) * Transferts E:PC(t) Q:(SUM(ag,(Trn0(ag,"Hou")-Trn0("Hou",ag)))*Qref(t)) $DEMAND:ROW(t) D:PK(t) Q:(SUM(ae,S0(ae))) P:Pref(t) E:PL(i,t) Q:(SUM(ae,spf(ae,"Lab")*F0('Lab',i)*Qref(t))) R:PLF(i,t) R:MK(i,t) E:RK(t) Q:(SUM(ae,spf(ae,"Cap"))) R:K(t) E:PFX(t) Q:(-SUM(ae,B0(ae))*Qref(t)) R:BOP(t)

Annex2: Equations of the CGE model in GAMS/MPSGE (6) * Transferts E:PC(t) Q:(SUM(ag,SUM(ae,(Trn0(ag,ae)-Trn0(ae,ag))))*Qref(t)) E:PC(t) Q:(-1) R:TRF(t) $CONSTRAINT:DTax(ac,t) DTax(ac,t) =E= Taud(ac)*(SUM(f,SAM(ac,f))*CTH(t)) ; $CONSTRAINT:K(t) K(t) =E= SUM(i,F0('cap',i))$T1(t) +(1-delta)*K(t-1) + (IT(t-1))*IT0*(r+delta) ; * Contrainsts on model structure $CONSTRAINT:BOP(t) PFX(t) =E= PRef(t) ; $CONSTRAINT:MK(i,t) PQ(i,t) =E= PRef(t) ; $CONSTRAINT:PLF(i,t) PL(i,t) =E= PRef(t) ;

Modeling experience and economic data availability in Macedonia