Prolix : a model of French financial intermediating,
by Mario Dehove.
The Prolix model (abbreviation of « Projection des Liquidités») was set up at the Office of Macroeconomic Research of the Forecast Department. It constitutes the financial part of the Copain model (abbreviation of « COm- portements PAtrimoniaux INtégrés», i.e. «integrated patrimony behavior»), a macroeconomic model which was described in Edition No. 48 of « Economie et prévision ». It reproduces the mechanism of monetary creation and, in general terms, shows the whole process of French financial intermediating during the period from 1960 to 1978. The model is presented in three chapters.
The author first examines the different periods of French financial intermediating since the end of the war. He makes a distinction between two basic systems of logic, depending on the part played by the Treasury and the commercial banks. They followed one another at the beginning of the 1960's.
In the first period, the activity of the banks remained secondary, their access to rediscounting was limited and the role of the Treasury was decisive. Subsequently, in the second period, the commercial banks imposed their competitive logic in monetary creation and the Treasury withdrew. The credit market no longer was restricted and the issuing of money was regulated by the rediscount rate established by the Bank of France on funds made available to the banks. The relatively rare credit rationing did not constitute an abandonment of this system, but was instead an emergency procedure.
The author describes the principles followed in setting up models of these two systems of financial intermediating, centering his analysis on the second period on which the estimates have been made. He likewise indicates the changes which must be made in the central model in order to describe the sequence of the particular phases of credit rationing. After this, the retrospective simulations of the model are described. Finally, in the third part, the author examines the influence of financial variables on the behavior of non-financial agents (enterprises and households), and describes the «strategy» they adopt when, in a closed economy, their monetary environment is altered. He then reviews the lessons to be learned in economic policy, and specifically monetary policy, through an observation of the analytic simulation of Prolix when integrated in a global model (Copain).
On a short-term basis the model reveals, in the case of monetary restrictions, a much greater tendency toward « stagflation » than is found in neo-keynesian models. It is due, in particular, to the complete pegging of interest rates of banks to the rates of the monetary market. On a long-term basis, the «orthodox» characteristics of a stricter monetary policy can be found once more: stabilization of activity at a lower level and a gradual inflexibility of prices.
However, it is not the «monetarist» adjustment of cash balance to desired levels which causes these long-term effects but rather the gradual dissipation of the influence of increased rates on real behavior through the readjustment of debts and thus the transfer of interests.
Prolix : a model of French financial intermediating, by Mario Dehove. The Prolix model (abbreviation of « Projection des Liquidités») was set up at the Office of Macroeconomic Research of the Forecast Department. It constitutes the financial part of the Copain model (abbreviation of « COm- portements PAtrimoniaux INtégrés», i.e. «integrated patrimony behavior»), a macroeconomic model which was described in Edition No. 48 of « Economie et prévision ». It reproduces the mechanism of monetary creation and, in general terms, shows the whole process of French financial intermediating during the period from 1960 to 1978. The model is presented in three chapters. The author first examines the different periods of French financial intermediating since the end of the war. He makes a distinction between two basic systems of logic, depending on the part played by the Treasury and the commercial banks. They followed one another at the beginning of the 1960's. In the first period, the activity of the banks remained secondary, their access to rediscounting was limited and the role of the Treasury was decisive. Subsequently, in the second period, the commercial banks imposed their competitive logic in monetary creation and the Treasury withdrew. The credit market no longer was restricted and the issuing of money was regulated by the rediscount rate established by the Bank of France on funds made available to the banks. The relatively rare credit rationing did not constitute an abandonment of this system, but was instead an emergency procedure. The author describes the principles followed in setting up models of these two systems of financial intermediating, centering his analysis on the second period on which the estimates have been made. He likewise indicates the changes which must be made in the central model in order to describe the sequence of the particular phases of credit rationing. After this, the retrospective simulations of the model are described. Finally, in the third part, the author examines the influence of financial variables on the behavior of non-financial agents (enterprises and households), and describes the «strategy» they adopt when, in a closed economy, their monetary environment is altered. He then reviews the lessons to be learned in economic policy, and specifically monetary policy, through an observation of the analytic simulation of Prolix when integrated in a global model (Copain). On a short-term basis the model reveals, in the case of monetary restrictions, a much greater tendency toward « stagflation » than is found in neo-keynesian models. It is due, in particular, to the complete pegging of interest rates of banks to the rates of the monetary market. On a long-term basis, the «orthodox» characteristics of a stricter monetary policy can be found once more: stabilization of activity at a lower level and a gradual inflexibility of prices. However, it is not the «monetarist» adjustment of cash balance to desired levels which causes these long-term effects but rather the gradual dissipation of the influence of increased rates on real behavior through the readjustment of debts and thus the transfer of interests.
