engleski

System Dynamic Version of the Polak's Monetary Model

The Polak’s macroeconomic monetary model reflecting the monetary approach to the balance of payments was developed in the International Monetary Fund (IMF). Its purpose is to integrate monetary, income and balance of payments analysis, and it became the basis of the conditionality applied to IMF credits. The Polak’s monetary model was designed to study the effects on both income formation and the balance of payments of the two most important exogenous variables operating on the economics of the great majority of countries in the early postwar period: autonomous changes in exports and the creation of domestic bank credit, or in monetary terms: foreign and domestic autonomous additions to a country’s money supply. The dynamic character of the Polak’s monetary model derives from the fact that it contains both income and the change in income. Solving the model gives us values for the variables that are determined by the model, such as income and the change in foreign reserves, as weighted averages of the values for the current and past years of export, capital inflows of the nonbank sector, and the change in the domestic credit of the banking sector. The dynamic nature of the Polak’s monetary model, in contrast to most of the academic monetary models of the balance of payments, yields not only the final equilibrium value of the endogenous variables but also the time path toward these values. This makes the model particularly suitable for presentation and manipulation in system-dynamic notation. Based on the original mathematical form of the Polak’s monetary model we constitute the causal loop diagram, first of the basic model and then the extended, goal oriented model variant. Based on the causal structure we also form the corresponding flow diagram of the model in POWERSIM notation. Polak’s model is especially suitable for operative application in IMF financial programming missions in developing countries. These countries are characterized by poorly developed capital market, relatively autonomous international capital flows, underdeveloped financial instruments where control of domestic loans features as one of the main instruments of managing aggregate demand and BOP, and poorly developed system of national accounts hampering the application of more complex financial programming methods. Since Croatia is one of these countries, it is chosen as a case to test applicability and validity of the system-dynamic version of Polak’s extended monetary model. The model parameters are calibrated for the period of 1994-1996 (based on the quarterly data), and validity of the model is tested on the data on factual movement of the used macro-economic variables in the period of 1996-1999.

macroeconomis monetary model; system dynamic approach

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