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Understanding Mnemonics and Equations in MFMod

MFMod utilizes a mnemonic structure following the World Development Indicators, with mnemonics consisting of 6 parts representing various economic indicators. The system includes codes for countries, accounting systems, market categories, and more. Additionally, equations in MFMod involve translating variables and coefficients to analyze economic relationships over time.

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Understanding Mnemonics and Equations in MFMod

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  1. Translating MFMOD

  2. Reading MFMOD Mnemonics • • The mnemonic structure used in MFMod follows the World Development Indicators (WDI). Most mnemonics have 6 parts in the form 11122333444456 – A 3-letter ISO code for the country or aggregate: BIH = Bosnia and Herzegovina – A 2-letter code for the accounting system NY = National income, NE = National expenditure, NV = Value added of production; GG = General/Federal govt., GP: Provincial govt., GL: Local govt.; LM = Labour market; FM = Financial market; BX/BM/BN = Balance of payments – Current account - exports/imports/net, BF = Balance of payments – Capital and Financial account – A main category of three letters CON = consumption, GDI = investment, GDP = GNP, EMP = employment, EXP = exports or expenditures, IMP = imports, REV = revenues, EXP = expenditures, BAL = balances, IND = industry, DBT = debt, FIN = financing, etc. – A category of four minor letters PRVT/PRV = private, GOVT/GOV = government, MRCH = merchandise, SRVC = services, TOTL = total, POTL = potential, CONS = consumption, GRNT = donations/grants, OTHR/OTH = others, GNFS = goods and services, WAGE = wages, INTP = interest payments, TRNS = transfers, CAPT = Capital, DOMT = domestic, EXTL = outside – An indicator of 1 letter for the variable type X = Price, K = Volume at constant prices, C = Current/Nominal – An indicator of 1 letter for the currency type N = local currency unit, D = USD, P = PPP – Fiscal revenues – Tax and Coverage Rates: an indicator of 2 letters *R SR = statutory rate, ER = effective rate, CR = coverage rate

  3. Reading MFMOD Mnemonics Example 1: BIHNEEXPGNFSKN translates into • BIH = Bosnia and Herzegovina • NE = National expenditure accounts • EXP = Exports • GNFS = goods and services • K = volumes at constant prices • N = local currency unit Example 3: BIHGPREVTAXTCN translates into ? Example 4: BIHNEEXPMRCHXN translates into ? Example 2: USAGGBALOVRLCD translates into • USA = USA • GG = General Government • BAL = Balance • OVRL = global (overall) • C = current values • D = dollars US

  4. Translating MFMOD Equations A quick summary to translate Eviews equation representations: Some frequently used Eviews commands: – @PC(X): growth rate in percentage points of variable X in discrete time – LOG(X): taking log of variable X – DLOG(X): taking growth rate differentials (log differentials) of variable X – X * Y: variable X multiplies with variable Y – X / Y: variable X divided by variable Y – X(-1): 1-period lagged value of variable X – @DURING: time dummy variable Some MFMSA equation representation tips: – -C(2)*(LOG…..- C(1)): C(2) represents the long-run ECM coefficient (speed of adjustment), C(1) constant – C(10) and higher: short-run coefficients in ECM equations – T_LR: trend term (linear increas in history, flat repeats the last historical value in forecast period) – DUMH: history dummy for quasi-identity equations (=1 in history, =0 in forecast)

  5. Translating MFMOD Equations Example : dlog(bihnecongovtxn) = -c(2)*(log(bihnecongovtxn(-1))-log(bihnygdpfcstxn(-1))-log(@abs(c(1)))) +C(10)*dlog(bihnecongovtxn(-1))+(1-C(10))*dlog(bihnygdpfcstxn)+c(11)*@during("2015") • • • • • Equation for Government Consumption Deflator -C(2): Error-correction format Long-run determined by growth rates of the lagged dependent variable and lagged GDP at Factor Cost Deflator Short-run: homogeneity condition on C(10) C(11): a dummy for year 2015

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