Faktorefterspørgsel og prisdannelse i SMEC

Abstract:

The paper describes the determination of firms demand for capital and labour and their price determination, with the main focus on the two most important sectors in the SMEC model: the export oriented industry and the service sector.SMEC - Simulation Model of the Economic Council - is a macroeconometric model describing the Danish economy. The model is used by the Danish Economic Council when conducting forecasts and policy analyses. The model has just undergone a major restructuring change which is described in the present paper and in two other working papers by the Secretariat of the Economic Council.

The present paper can roughly be divided into three parts. One describing the theoretical background of the model, one summarizing the results of the estimations of the structural relations, and one which describes the main properties of this submodel in SMEC. The theoretical basis is a Cobb-Douglas production function which combined with cost minimization yields the long run demand for capital and labour and a long run price level. the Cobb-Douglas function has value-added as the measure of output, and the measure of capital only includes machinery (not buildings). The implementation takes into account changes in total factor productivity (neutral technical progress) as well as biased technical progress - through changes in the alpha-parameter. The estimated relations allows for short run discrepancies from the long run levels. The main properties of the submodel are: (1) Homogeneity of degree 1 in prices. (2) In the long run the wage share is given by the parameter, alpha, in the production function. (3) Constant returns to scales. (4) Labour hoarding which is seen by the fact that a one per cent increase in production increases employment by less than one per cent in the first 1-2 years. (5) No pure profit.