An econometric model of the balance of payments of Venezuela
The fundamental purpose of this study is to build an econometric model of the Venezuelan Economy to concentrate primarely on the following: first, to analyse the effects of monetary, fiscal and external disturbances on expenditures, prices and on the Balance of Payments during the period 1955-1984, a period of fixed exchange rate; second, to approximate an optomal policy 'mix' necessary to achieve certain macroeconomic objectives, i. e, steady economic growth, price stability and balance of payments equilibrium; thirdly, to provide a simple well integrated macroeconometric model of the Venezuelan Economy. The resulted model is a generalised income determination model where a short to medium term analysis of balance of payments can be exercised. The model belongs to the vintage of general keynesian type where the monetray and financial sector enters in a stock-flow fashion. Explicit recognition of the government budget constraint guarantees the integration of both sectors of the Venezuelan Economy as well as of the policy shocks. The empirical section of this dissertation is carried out using least squares method to estimate the structural parameters under the carefully scrutiny of the Econometric Modelling strategy developed by Professor David Hendry and associates and which has becoming standard in the econometric modelling practice in the United Kingdom. From the analysis of the dynamic multipliers emerges some already standard results. It has been demonstrated that the impact of the budget deficit on the economy-diverges depending on which method is used to finance the deficit. Money financing shows a strong impulse in economic growth with a large disequilibrium in the balance of payments. Multipliers are negative. Exchange rate multipliers are positive with respect to the balace of payments following its direct effect on the current account and its induced effect on economic growth. Price are sticky according to the manner they are incorporated, as well as for its Non-Granger causality with money. No empirical basis was found to accept the money-price causality. Pure monetary policy did show ambiguous results, however, financial liberalization produce strong economic growth and corresponding balance of payments deficit. Using these results we could inferr a plausible optimal combination of policies targeted towards equilibria in the external accounts with steady economic growth.