The Moorish Wanderer

Mean-Tested Compensation Fund and Regional differences

Posted in Dismal Economics, Moroccan Politics & Economics, Morocco, Read & Heard by Zouhair ABH on June 18, 2012

I have reached a certain level of my graduate life where I need to sort out my writings: less of free-style blog-posts, and more serious, academic papers. I guess from now on I might be less inclined to argue forcefully on economic issues, and the reader can make up their mind as to the need to present such and such argument for such and such claim.

Last post was about a simple and relatively inexpensive scheme designed to induce a mechanism design such that only those households below the median income to genuinely benefit from the subsidy, so as to avoid an excessive compensation whose actual beneficiaries are those at the top. The idea is to look at the median consumption, subsidize it, and provide a commensurate cash relief to any household claiming it. Hopefully, the wealthiest would back away from the scheme, since that would mean a drastic reduction in their consumption habits, and each would pay the true relative price of their consumption bundle.

This post deals with the finer details of such program; the idea is to identify regional means of consumption, hopefully their median consumption, and from then on apply the same method nationwide; the argument behind the region-based discrimination is obviously is its cost-efficiency: a nationwide median understates the discrepancies between regions, just as a mean does – you might understand it as an average median, which brings equal problems in terms of mechanism design strategy-proofness. And based on the figures provided by HCP, we do observe a great deal of discrepancies, which signals to a lower cost for cash-relief.

According to HCP’s “Comptes régionaux PIB régional et dépenses de consommation afinale des ménages“, Grand Casablanca and Rabat regions account for 35% of total GDP, but only 26.4%. The 9% discrepancy captures what might be construed as a typical illustration of Keynes’ consumption function: richer households tend to consume less relative to their output, and they are likely to devote less of their new income when it grows (the so-called marginal propensity of consumption) But still, two regions out of 16 account for the fifth of household consumption in Morocco means a reasonable claim can be made as to the distribution of actual recipient of the Compensation Fund subsidies. As a matter of fact, the subsidies goes to the wealthiest households in metropolitan areas, whose relative consumption to household is significantly lower compared to nationwide figures; in absolute terms though, the average Casawi household consumes twice as much as their opposite number in Taza or Alhuceimas.

Regional distribution of actual subsidy provided by the median-based cash relief scheme. Poorer regions tend to benefit above the 20% nationwide relief. (big up for Kingstoune and the neat SVG master map)

The median regional household consumption is in the neighbour of 93,760 dirhams per annum, with extreme values as high as 139,810 in Rabat-Salé-Zemmour and as low as 72,460 dirhams per household in the Gharb.

The scheme would provide cash relief on the basis of the regional median household, with those below the median benefiting up to 2,700 dirhams in excess, precisely because they can claim higher levels than their actual consumption, a significant enhancement for their purchasing power.

On the other hand, those above the median would have to sacrifice more than 25,000 dirhams of consumption to be eligible for that cash-relief scheme, something that represents a net loss of 21% of their current consumption. The arbitrage left to the upper households is pretty straight forward: either accept to lose 21% of their current consumption immediately, or accept to pay a higher price gradually.

On the basis of a 60% population eligible for the cash-relief system, the net cost for the Compensation Fund would be valued at around 25,5Bn dirhams, 400 Million dirhams less than the nationwide-based median consumption bundle. This is the best evidence yet that local standards are best in determining the weighted-average median consumption bundle on the basis of which households are eligible for the cash relief scheme. These figures are based on 2011 estimates, which explains the discrepancies with respect to the figures put up in the latest post, since these are 2010 estimates. This means that the cost of the Subsidy fund can be maintained constant in real terms, i.e. relative to inflation, but also with respect to the nationwide GNI growth.

 

Food and Consumption Subsidy: Below the Median

Posted in Dismal Economics, Flash News, Moroccan Politics & Economics, Morocco by Zouhair ABH on June 9, 2012

I did not watch our Head of Government’s performance on TV. But I guess by now, the Moroccan public will take a keen interest in the essential mechanism of economic interactions. Mr Benkirane’s favourite catchphrase “God’s Will” might not be as helpful as he makes out.

A strong negative correlation between Consumption and Net Exports, compounded by the strong contribution of the former to GDP growth

First off, the graph opposite just shows the insanity and how unsustainable the subsidies are: Moroccan has a structural deficit in its trade balance, and the compensation fund does not subsidize household consumption, but chiefly subsidizing the trade deficit. As such, the Moroccan government’s hands are tied: if they decide to reform radically the compensation fund, or address the problem of trade balance and balance of payments, this would mean doing away with a reliable source of growth -household consumption- and a lucrative source of fiscal receipts.

Household consumption is a curse no longer in disguise: the weaker foreign demand for Moroccan exports from the Eurozone, the stronger our economy will have to rely on domestic consumption, the heavier the weight of subsidies on public finances, with a paradoxical effect on government receipts, but only up to a point.

The idea is thus to achieve a three-fold objective:

First, reform the compensation fund in an effort to address the structural weaknesses of the Budget.

Second, direct relief to households genuinely in need for it.

Third, balance domestic consumption so as to make Exports a viable substitution in terms of growth contribution.

The Iranian example provided by fellow blogger Omar El Hayani is too inflationary, and I am afraid his computations were a bit far-off base: suffice to say these computations should be done at the household level (400 dirhams per person allowance does not sound to be a viable program at any rate). A household-based direct subsidy in form of cash relief ought to perform better, with a nation-wide benchmark.

The idea is simple enough to avoid the ritual pitfalls of ‘Institutional Shortcomings’ (codeword for government corruption) by applying a small device from Game Theory properties: the subsidy is computed on the basis of a composite basket of goods a median household usually spends money on. The advantage of such a mechanism is that all those households below the Median would automatically benefit from it, regardless of their declared type of consumption. As for the better off households above the median, they have the choice between keeping on with their existing patterns of consumption -and charged more for it- or reduce their consumption absolute levels so as to match the subsidized median basket eligible for the cash relief, which results in a reduction in their consumption in absolute value. This is a win-win outcome: poorer households observe their purchasing power is stable or improving, and the wealthier Moroccans are given the opportunity to pay the true price of their consumption.

This model has the advantage of deflecting inflation away from the vulnerable households: lest we forget, about a third of household consumption in Morocco is concentred in the hands of 10% wealthiest households, these are the ones benefiting from the current system of subsidies, and these are the ones behind any sizeable inflationary shock.

Consider HCP’s households survey in 2000-2001: The average share of income devoted to food consumption established itself around 41%. The figure itself, when compared to the median share of consumption (47%) shows how skewed household consumption is in favour of the wealthiest, even though these consume only a little more than 30% of their disposable income.

Per these findings, the benchmark a household consist of 6 individuals, most likely to be 4 over time, with an annual gross income of 76,940 dirhams (2010 estimates).

Their annual consumption establishes itself around 36,100 dirhams per annum. If these are subsidized at 20%, the total cost for the Compensation Fund would be established around 25.89 Bn dirhams per year, in real terms. The median household is subsidized at 20%, the poorer 10% at around 42% of their consumption, and the real subsidy percentage would be closer to 25%, which only confirms how this particular scheme helps those who really need it.

Austerity and the New Engines of Growth

Posted in Dismal Economics, Moroccan Politics & Economics, Morocco, Tiny bit of Politics by Zouhair ABH on June 3, 2012

Paul Krugman on Chris Matthews‘ Hardball argued forcefully in favour of a larger fiscal stimulus package

How come the Moroccan mainstream media doesn’t provide comparable levels of debate? Surely Ministers Nizar Baraka and Driss Azami El Idrissi, or even the parliamentary leadership (Said Khairoun, Chairman of the Permanent Parliamentary Committee on Public Finances) can afford to go on TV or the radio and be scrutinized on more than just platitude (I doubt Milouda Hazib, senior ranking PAM member in the same committee fully grasps the implications of the marginal income tax rate. Mr Technocrat himself, Ahmed Reda Chami seems to be more interested in pandering in view of the next USFP convention than actually doing his job as a member of the said parliamentary committee)  The Finances ministry uploaded not long ago a useful compendium of new fiscal measures, but as far as I can tell, no mainstream journalist has had the interest of writing a paper on how effective the revenue enhancement in car stamps and duties have on reducing car use and, indirectly on oil consumption. Government officials go on with the business of making the Budget bill, the elected representatives supposed to scrutinize them do not seem to be interested in the policy implication of these decisions, and the fourth estate is far behind on this particular piece of news.

That decision to lift moderately oil subsidy on industrial and car fuel is not a sign of the government coming to their senses regarding the compensation fund, it is merely a half-measure designed to curtail the runaway cost of the said fund. At best, the deficit will remain within the 5% projected for 2012, otherwise that decision will hurt significantly growth, paradoxically even more so if a more radical scheme was introduced with the idea of replacing fuel-inefficient vehicles.

Suffice to say there are about 2.001.458 cars and other vehicles in Morocco (2009 figures) and 74.4% of these are more than 6 years-old (2008 figures) more than half have more than 10 years of service. Older car models tend to consume more, and these are usually (mainly) driven by less well-off Moroccan households and businesses. In effect, the decision to increase diesel and fuel by about 14% overnight will hurt a majority while the better off minority will not adjust their behaviour and continue to take full advantage of an indiscriminate and ultimately unfair subsidy system.

I am drifting here… Paul Krugman makes a very good case for the stimulus package, and warns austerity measures would plunge the US economy into a recession similar to that experienced by Spain, Portugal and many other countries in Europe. And yet Morocco is experiencing increasingly dangerous economic hardships, a piling public debt, a sluggish growth in M3 aggregate, and finally, that problem no one in Morocco can actually address, the abysmal trade deficit. a research paper by the IMF points out to the effects of European economic fluctuations on Morocco’s growth, and their conclusions are daunting: the recover in the Eurozone will be slow, and almost certainly not pulled by domestic consumption:

Our analysis confirms the important role played by the European Union for the Moroccan and Tunisian economies. We note, however, that this close tie might also represent a challenge for the future.

For the two countries, enhancing competitiveness and diversifying trade flows is essential for sustaining future growth.

This means Morocco’s foreign demand is unlikely to improve over the next couple of years, and with it, any possibility of growth around the government’s objective of 5.5% average by 2016. The best of best scenario (net) exports can do is to give a modes 1.5 percentage point to growth, which is way below what the economy needs to reach the vicinity of 5% to 5.5%.

Morocco’s growth is therefore left to domestic consumption and government expenditure. This is a particular recipe for disaster: on the one hand, any consumption-led growth means about 30% of household consumption will be insured by a wealthy few less than 600,000 households, and these people are  very hungry for transportation, luxury and imported goods. To these top-tier consumers, one needs to take into accounts the demand pressure implied by the aspiring middle-class, the various increases in public sector payroll. As for government expenditure, assuming our elected officials are taking their pledge to bring the deficit back under 3% GDP seriously, an expansionary budget cannot go one forever, as the pressure on rates, barely alleviated by Bank Al Maghrib’s decision to cut rates 25bps, is going to eventually penalize the private sector, if it is not already the case.

GDP Growth and two components’ contribution to growth: Household Consumption and Government Expenditure.

So Morocco and its public finances are between a rock and a hard place: on the one hand, any Keynesian-like stimulus program is unlikely to restore Morocco’s economic stability, and might well turn out to be a bad temporary fix, whose price are high borrowings now and higher taxes next; on the other hand, growth cannot be fuelled by domestic demand indefinitely because it will result in deteriorating Morocco’s terms of exchange and trigger a run on the currency. That is where cutting the budget comes in: to rebalance the engines of growth.

Government expenditure and Household consumption have contributed an average of .72 and 1.52 percentage points respectively of the 3.58% average growth over the 1992-2010 period. Their contribution goes higher in the last decade with respectively .79 and 2.31 percentage points for an average growth of 4.64% since 2000. An austerity program, that is, discretionary cuts in government expenditure mean a reduction of the budget’s contribution in growth, and in the short term results in a small contraction of GDP, with an undetermined time lag for agents in the economy to adjust themselves, and then growth goes on.

The picture is quite clear as to why government expenditure has to be halved: the Moroccan economy cannot sustain itself with high levels of of consumption and government spending; there are arbitrages to be made, and these come to the expenses of two other equally important national accounting aggregates, Investment (Gross Capital Formation) and Exports (Trade Balance): Y = C + G + I + NX

Cutting the budget by means of restraining public service payroll with growth rate well below inflation rate (since 1992, payroll increased 6.6% on annual average, while CPI inflation rate established itself around 2.6% over the same period of time) is necessary because the available resources have to be used somewhere else. It is a bit of a vicious circle: high public payroll means high household consumption and higher imports, which in turns means high receipts from VAT – these make out 21% of total fiscal receipts, and the trend is upward since 2004. Obviously, the government cannot just agree to kill a lucrative source of income for the sake of economic stability, but the fact of the matter is, the economy badly needs it.

We will have to agree to the unbearable fact that we cannot secure anything near 5% by 2016. Growth has been the magic wand to solve, or at least hide Morocco’s deep structural and social problems: trickle-down effects from income inequality were relied upon to improve (marginally) the condition of poorer households, and government jobs were there to appease unions and the unemployed graduates. On the other hand, other engines of growth have been neglected: Investment makes up for 1.5 percentage point of GDP growth since 1960,  2.38 points since 2000. Same goes for Gross Exports, with 2.19 percentage points as well. High consumption and higher government expenditure means higher imports, with the immediate effect of penalizing promising prospect for the Moroccan economy.

Investment and Exports: the first is just a matter of corporate interest in buying assets, the second needs to adjust to the end of an era: the Europeans are no longer a good trading partner.

The Big Picture – Part 6

Posted in Dismal Economics, Moroccan Politics & Economics, Morocco, Read & Heard by Zouhair ABH on May 19, 2012

This should be the last of “the Big Picture” series. My computations have reached a point where further effort needs to be fed more reliable figures – and get paid handsomely for it.

All previous results assumed no government intervention in the economy; But just as the initial results did not factor in foreign trade, the gradual adjustment of the RBC model shows our laborious business cycles accounting gets better as we introduce new elements.

Now consider government expenditure to be financed by taxes levied on labour and capital. These taxes are levied on ‘net’ income, and are defined as follows:

tax_{labour} = \tau_w (1-\alpha) z_t \left[\frac{k_t}{h_t}\right]^\alpha

tax_{capital} = \tau_k. \alpha .z_t \left[\frac{h_t}{k_t}\right]^{1-\alpha} +1 - \delta

both \tau_w .\ \tau_k are proportional to wages and capital rent. In terms of quantitative fiscal policy, these amount to a total fiscal pressure of about 14% GDP. Government expenditure is then added up to the National Accounting identity: Y = C + G + I

where Consumption, Investment and General government expenditure make up GDP.

Government taxation in this particular case is optimal – and as such might not fit exactly the general framework of fiscal policy-making: these are fluctuating rates within specified steady-state values (\tau_w .\ \tau_k are not fixed) and they levy fiscal income on factors paid at their marginal productivity, a strong assumption very difficult to verify with the data at hand. However, these government wedges, while they do not account for government cycles, do explain a lot of the observed volatility in other Business Cycles components. The new comparison table yields:

HP Data     |s      |sj/sy |Corr(y,j)|
------------+-------+------+----------
Y_GDP        |0.0803|   1  |    1    |
------------+-------+------+----------
Consumption |0.07013|0.8734|  0.8215 |
------------+-------+------+----------
Investment  |0.22035|2.7441|  0.8369 |
------------+-------+------+----------
Capital     |0.09167|1.1416|  0.4448 |
------------+-------+------+----------
Government  |0.24127|3.0046|  0.4997 |
------------+-------+------+----------
Labour      |0.04256|0.5300| -0.8670 |
--------------------------------------
RBC         |s      |sj/sy |Corr(y,j)|
------------+-------+------+----------
Y_GDP       |0.0734 |   1  |    1    |
------------+-------+------+----------
Consumption |0.0592 |0,8065|  0.9842 |
------------+-------+------+----------
Capital     |0.0826 |1,1253|  0.5972 |
------------+-------+------+----------
Government  |0.0045 |0,0613| -0.7591 |
------------+-------+------+----------
Labour      |0.0250 |0,3405| -0.9462 |
--------------------------------------

Government wedges do a very good work actually: the distortionary effects of labour taxes for instance, account for much of their deviation from steady-state and correlation with output. Same goes for Capital, but not investment: while corporations are taxed on their operational margins -minus a few policy incentives- they do not seem to have a significant impact on their investment decision. the model’s shortcomings are relatively easy to explain: the only exogeneous shock incorporated in the model comes from foreign trade (trade balance) and model specification restraints somewhat capital accumulation; this explains why capital is more correlated to output in the model compared to actual data: other (significant) factors have not been taken into account.

While government wedges do quite well in explaining absolute and relative volatility (to output), they are pretty weak at explaining the intrinsic volatility of government expenditure, nor do they succeed in capturing the pro-cyclical nature of empirical public finances; the RBC model matches the theoretical framework of government expenditure – anti-cyclical and designed to smooth business cycles over- actual data however, seem to indicate a relatively weak positive correlation between government expenditure and Morocco’s business cycles. One way to account for this result is the strong assumption underlying government expenditure and tax receipts: these are set to be balanced over the long run; this means public debt as a budget policy designed to fund some of the government’s expenditure in smoothing cycles – especially in recession phases- is not as efficient as one might think – efficiency, in this case, is not to be measured for the quarters following the immediate expansionary policy, but as a result taken over a long period of time, such as the one the data is based on.

In addition to the introduction of public finances dynamics, the standard output function has been specified with two incorporated shocks: the trade balance has been added as a distinct component – and this explains a lot the increased output volatility – not only does foreign capital account for much of Morocco’s own capital accumulation, but it seems other factors embedded in it – say foreign imported technical expertise – give a powerful explanation as to how output fluctuates over time, and these foreign (exogeneous) factors can be expected to be downplayed due to the stationary specification of the balance of trade process. Furthermore, the optimal tax sequences \left\{ \tau_w .\ \tau_k \right\} are computed on the steady-state assumption that primary fiscal pressure does not go beyond 17.4% of GDP, in real terms; this means the longer a budget deviates upwards from that threshold, the longer agents (households and businesses alike) will adjust their own behaviour accordingly; in essence, any major fiscal policy cannot count on permanent effects – computations show only 72% of an initial policy decision carries its effect over one period -assumed in this case to be a year. This means that for a government to set a policy for the legislature, the measure in effect carries only 25.16% of its initial intensity by end of the 5th year. On the other hand, any cut to the corporate tax is likely to maintain its effect on capital accumulation at 93% on average over two years; these results are based on the auto-correlation results listed below:

Order       1       2       3       4       5       
Y        0.7227  0.5081  0.3686  0.2668  0.1944
C        0.8179  0.6436  0.5124  0.4110  0.3323
K        0.9667  0.8984  0.8194  0.7363  0.6544
H        0.7328  0.5944  0.4930  0.4095  0.3417
z        0.7676  0.5310  0.3758  0.2646  0.1865
tb       0.6361  0.4593  0.3219  0.2272  0.1601
tax_l    0.6362  0.4593  0.3220  0.2272  0.1601
tax_k    0.6362  0.4593  0.3220  0.2272  0.1601
G        0.6361  0.4593  0.3220  0.2272  0.1601

There was one major difficulty I kept stumbling upon: no matter how careful my coding was, I failed to produce satisfactory results as to the differentiated impulse responses triggered by exogeneous shocks, those “white noises” from the structural shocks z_t .\ \epsilon_t and tb_t .\ \upsilon_t functions. Other than that, the final results are pretty straightforward in view of the described methodology.

The source code I have compiled to get the results can be found below. MATLAB “Dynare” add-in is a very powerful language that needs to be downloaded (for free) and installed on the MATLAB directory and run via the simple command line dynare YourFile.mod (alternatively, GNU Octave can do as well)

\\declaration of variables mainly Output, Consumption, Capital, Labour and Government,
var y, c, k, h, g, z, tb, tax_l,tax_k;
varexo e, u;
\\structural parameters computed by means of calibration
parameters theta, alpha, gamma, delta, beta, tau, rho, sigmae, sigmau;
theta = 0.037;
alpha = 0.3414;
gamma = 0.3351763958;
delta = 0.029;
beta = 0.9198;
rho = 0.27234;
tau = 0.43244;
sigmae = 0.0678233;
sigmau = 0.0959883;
\\the model is computed by building a matrix of First Order Conditions that capture agent's decision rules
model;
c = gamma*(1-tax_l)*(1-alpha)*exp(z)*(k(-1)/h)^alpha;
z = rho*z(-1) + tau*tb(-1) + e(-1);
tb = rho*tb(-1) + tau*z(-1) + u(-1);
y = exp(z)*exp(tb)*k(-1)^alpha*h^(1-alpha);
k = exp(tb(-1))*(y-c)+(1-delta)*k(-1);
exp(tb)*c^(gamma*(1-theta)-1)*((1-gamma)*h)^((1-gamma)*(1-theta))=
beta*(exp(tb(+1))*c(+1)^(gamma*(1-theta)-1)*((1-gamma)*h(+1))^((1-gamma)*
(1-theta))*((1-tax_k)*alpha*exp(z(+1))*(h(+1)/k)^(1-alpha)+1-delta));
g = (tax_l*(1-alpha)*exp(z)*(k(-1)/h)^alpha)+(tax_k*(alpha*exp(z)*
(h/k(-1))^(1-alpha)+1-delta));
y = exp(tb)*g + c + k - (1-delta)*k(-1);
tax_l/tax_k = (1-alpha)/alpha;
end;
\\steady-state values computed by the same methodology proposed for calibration
initval;
g = 0.0726936349;
tax_l = 0.0324716235289365;
tax_k = 0.0324716235306143;
h = 0.2663385236;
y = 0.465686322;
k = 1.3684021321;
c = 0.4259362416;
tb = 0;
z = 0;
e = 0;
u = 0;
end;
\\simulated shocks from exogeneous "white noises"
shocks;
var e; stderr sigmae;
var u; stderr sigmau;
var e, u = sigmae*sigmau;
end;
stoch_simul;

The Big Picture – Part 4

Posted in Dismal Economics, Moroccan Politics & Economics, Morocco, Read & Heard by Zouhair ABH on May 14, 2012

The standard RBC model has several major limitations that fail to account for proper results – in this case, a close match-up with summary statistics obtained after significant aggregates have been HP-filtered. The graph below for instance, shows a long-term comparison between actual GDP data, and RBC-generated output, the widening gap can be explained by the fact that savings in the standard RBC setup are exclusively domestic; recall capital accumulation dynamics:
k_{t+1}=(1-\delta)k_t + i_t
and National Accounting identities:
c_t + i_t = y_t
and
y_t = z_t k_t^\alpha h_t^{1-\alpha}
Obviously, if the Moroccan economy were to rely solely on domestic savings, capital accumulation would have grown at a lower rate, hence leading to smaller levels of output; furthermore, because Morocco is not an immigration country – meaning, demographic growth is endogenous- Capital dynamics account for a lot in terms of output growth, which vindicates the initial claim domestic savings are not high enough to explain the levels of investment observed over the past half a century.

This in my opinion is the strongest piece of evidence I would consider for pro-free trade policies: capital flows boost the economy, to the tune of 130Bn Dirhams every year since 1965, in real terms.

In addition to Balance of Payments issues, the RBC model needs to embed Government policies in the model’s intrinsic functions; Overall, RBC model described by an inter-temporal CRRA utility function and the resources constraints mentioned above yield the following:

HP Data     |σ      |σj/σy |Corr(y,j)|
------------+-------+------+----------
Y_GDP       |0,08030|   1  |    1    |
------------+-------+------+----------
Consumption |0,07013|0,8734|  0,8215 |
------------+-------+------+----------
Investment  |0,22035|2,7441|  0,8369 |
------------+-------+------+----------
Government  |0,24127|3,0046|  0,4997 |
------------+-------+------+----------
Labour      |0,04256|0,5300| -0,8670 |
--------------------------------------
RBC         |σ      |σj/σy |Corr(y,j)|
------------+-------+------+----------
Y_GDP       |0,06596|   1  |    1    |
------------+-------+------+----------
Consumption |0,04715|0,7148|  0,5092 |
------------+-------+------+----------
Investment  |0,20460|3,1018|  0,8766 |
------------+-------+------+----------
Government  |         No Data        |
------------+-------+------+----------
Labour      |0,00002|0,0003|  0,0238 |
--------------------------------------

Starting from the mid-1960s, Real GDP departed significantly from RBC-generated GDP. Incidentally, Morocco’s Balance of Payment picked up steam around the same time. (log-levels)

As you can see, the standard RBC model does pretty well in explaining cyclical fluctuations on GDP, household consumption and Investment dynamics – it exhibits lower levels of volatility for GDP, Consumption and Investment.

So even though synthetic data shows discrepancies like that of GDP’s, it retains similar features – in this case volatility, correlation and relative variance with respect to other aggregates.

The basic model provides powerful results, but not powerful enough to start building on forecasts and statistics-based predictions; there is a need for newly specified functions where foreign trade, government expenditure, and perhaps cross-correlated structural shocks are embedded.