The economics underlying NiGEM


Linkages in NiGEM take place through trade and competitiveness, interacting financial markets and international stocks of assets. The model is homogeneous in exchange rates, and exports demand equals imports across the world. Competitiveness acts as an important stabilising feedback on the model, as shifts in the domestic price level or the exchange rate feed into relative trade prices, allowing net trade to offset shifts in domestic demand.

There are also links between countries in their financial markets as the model describes the structure and composition of wealth, emphasizing the role and origin of foreign assets and liabilities as well as the distinction between equity, bond and bank based assets, all of which are covered. Equilibrium output depends on the production function underlying the model, and the output gap is the deviation of actual from equilibrium output.

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