REMI

Structure

The REMI model is a structural economic forecasting and policy analysis model. It integrates input-output, computable general equilibrium, econometric, and economic geography methodologies. It is dynamic, with forecasts and simulations generated on an annual basis and behavioral responses to compensation, price, and other economic factors.

The model consists of thousands of simultaneous equations with a structure that is relatively straightforward. The exact number of equations used varies depending on the extent of industry, demographic, demand, and other detail in the specific model being used.

The overall structure of the model can be summarized in five major blocks:

  1. Output,
  2. Labor and Capital Demand,
  3. Population and Labor Supply,
  4. Wages, Prices, and Costs, and
  5. Market Shares.

The blocks and their key interactions are demonstrated in Figures 1 and 2. Click Images to Enlarge.

[wp_lightbox_fancybox_image link=”http://www.remi.com/wp-content/uploads/2012/03/REMI_Model_Linkages_Excluding-Eco-Geo-Linkages1.jpg” title=”The agglomeration economies provided by the proximity of producers and suppliers is measured in the commodity access index. This index determines intermediate input productivity. The commodity access index for each industry is determined by the use of intermediate inputs, the effective distance to the input suppliers, and a measure of the productivity advantage of specialization in intermediate inputs. This productivity advantage is the elasticity of substitution between varieties in the production function. Although producers may be able to find a substitute for the precise component or service that they desire, access to the most favorable input provides a productivity advantage. When substitution between varieties is inelastic, then the productivity benefit of access to inputs is high. Thus, agglomeration economies are strong for the production of electrical equipment, computers, and machinery, and other industries that require specialized types of inputs for which substitution is difficult.” source=”http://www.remi.com/wp-content/uploads/2012/03/REMI_Model_Linkages_Excluding-Eco-Geo-Linkages12.jpg”]
[wp_lightbox_fancybox_image link=”http://www.remi.com/wp-content/uploads/2012/03/REMI_Model_Linkages_Excluding-Eco-Geo-Linkages2.jpg” title=”The Population and Labor Supply block includes detailed demographic information about the region. Population data is given for age, gender, and ethnic category, with birth and survival rates for each group. The size and labor force participation rate of each group determines the labor supply. These participation rates respond to changes in employment relative to the potential labor force and to changes in the real after-tax compensation rate. Migration includes retirement, military, international, and economic migration. Economic migration is determined by the relative real after-tax compensation rate, relative employment opportunity, and consumer access to variety.” source=”http://www.remi.com/wp-content/uploads/2012/03/REMI_Model_Linkages_Excluding-Eco-Geo-Linkages22.jpg”] [wp_lightbox_fancybox_image link=”http://www.remi.com/wp-content/uploads/2012/03/REMI_Model_Linkages_Excluding-Eco-Geo-Linkages3.jpg” title=”The Labor and Capital Demand block includes the determination of labor productivity, labor intensity, and the optimal capital stocks. Industry-specific labor productivity depends on the availability of workers with differentiated skills for the occupations used in each industry. The occupational labor supply and commuting costs determine firms’ access to a specialized labor force. Labor intensity is determined by the cost of labor relative to the other factor inputs, capital and fuel. Demand for capital is driven by the optimal capital stock equation for both non-residential capital and equipment. Optimal capital stock for each industry depends on the relative cost of labor and capital, and the employment weighted by capital use for each industry. Employment in private industries is determined by the value added and employment per unit of value added in each industry.” source=”http://www.remi.com/wp-content/uploads/2012/03/REMI_Model_Linkages_Excluding-Eco-Geo-Linkages32.jpg”] [wp_lightbox_fancybox_image link=”http://www.remi.com/wp-content/uploads/2012/03/REMI_Model_Linkages_Excluding-Eco-Geo-Linkages4.jpg” title=”The equations in the Market Shares block measure the proportion of local and export markets that are captured by each industry. These depend on relative production costs, the estimated price elasticity of demand, and the effective distance between the home region and each of the other regions. The change in share of a specific area in any region depends on changes in its delivered price and the quantity it produces compared with the same factors for competitors in that market. The share of local and external markets then drives the exports from and imports to the home economy.” source=”http://www.remi.com/wp-content/uploads/2012/03/REMI_Model_Linkages_Excluding-Eco-Geo-Linkages42.jpg”]
[wp_lightbox_fancybox_image link=”http://www.remi.com/wp-content/uploads/2012/03/REMI_Model_Linkages_Excluding-Eco-Geo-Linkages5.jpg” title=”The Compensation, Prices, and Costs block includes delivered prices, production costs, equipment cost, the consumption deflator, consumer prices, the price of housing, and the compensation equation. The cost of production for each industry is determined by the cost of labor, capital, fuel, and intermediate inputs. Labor costs reflect a productivity adjustment to account for access to specialized labor, as well as underlying compensation rates. Capital costs include costs of non-residential structures and equipment, while fuel costs incorporate electricity, natural gas, and residual fuels. The consumption deflator converts industry prices to prices for consumption commodities. For potential migrants, the consumer price is additionally calculated to include housing prices. Housing prices change from their initial level depending on changes in income and population density. Compensation changes are due to changes in labor demand and supply conditions and changes in the national compensation rate. Changes in employment opportunities relative to the labor force and occupational demand change determine compensation rates by industry.” source=”http://www.remi.com/wp-content/uploads/2012/03/REMI_Model_Linkages_Excluding-Eco-Geo-Linkages52.jpg”]

 

[wp_lightbox_fancybox_image link=”http://www.remi.com/wp-content/uploads/2012/03/economic_geography_linkage1.jpg” title=”The agglomeration economies provided by the proximity of producers and suppliers is measured in the commodity access index. This index determines intermediate input productivity. The commodity access index for each industry is determined by the use of intermediate inputs, the effective distance to the input suppliers, and a measure of the productivity advantage of specialization in intermediate inputs. This productivity advantage is the elasticity of substitution between varieties in the production function. Although producers may be able to find a substitute for the precise component or service that they desire, access to the most favorable input provides a productivity advantage. When substitution between varieties is inelastic, then the productivity benefit of access to inputs is high. Thus, agglomeration economies are strong for the production of electrical equipment, computers, and machinery, and other industries that require specialized types of inputs for which substitution is difficult.” source=”http://www.remi.com/wp-content/uploads/2012/03/economic_geography_linkage12.jpg”]
[wp_lightbox_fancybox_image link=”http://www.remi.com/wp-content/uploads/2012/03/economic_geography_linkage2.jpg” title=”The Population and Labor Supply block includes detailed demographic information about the region. Population data is given for age, gender, and ethnic category, with birth and survival rates for each group. The size and labor force participation rate of each group determines the labor supply. These participation rates respond to changes in employment relative to the potential labor force and to changes in the real after-tax compensation rate. Migration includes retirement, military, international, and economic migration. Economic migration is determined by the relative real after-tax compensation rate, relative employment opportunity, and consumer access to variety.” source=”http://www.remi.com/wp-content/uploads/2012/03/economic_geography_linkage22.jpg”] [wp_lightbox_fancybox_image link=”http://www.remi.com/wp-content/uploads/2012/03/economic_geography_linkage3.jpg” title=”The availability of a large pool of workers within a region contributes to the labor force productivity. Each worker brings a set of unique characteristics and skills, even within the same occupational category. More broadly, locations that can be easily reached by a large number of potential employees can better match jobs with workers. The equation for labor productivity due to labor access is calculated separately for each occupation. Occupational productivity in each location is based on the residential location of all potential workers and their actual or potential commuting costs to that location.” source=”http://www.remi.com/wp-content/uploads/2012/03/economic_geography_linkage32.jpg”] [wp_lightbox_fancybox_image link=”http://www.remi.com/wp-content/uploads/2012/03/economic_geography_linkage4.jpg” title=”Changes in market shares within the nation depend on changes in industry production costs and output. Production cost increases lower market shares, but higher output raises market shares. Market shares rise with output increases, since higher output is better able to meet local and other regions’ demand for goods and services by providing more choices.” source=”http://www.remi.com/wp-content/uploads/2012/03/economic_geography_linkage42.jpg”]
[wp_lightbox_fancybox_image link=”http://www.remi.com/wp-content/uploads/2012/03/economic_geography_linkage5.jpg” title=”Economic geography concepts account for the productivity and price effects of access to specialized labor, goods, and services. These prices measure the price of the industry output, taking into account the access to production locations. This access is important due to the specialization of production that takes place within each industry, and because transportation and transaction costs of distance are significant. Composite prices for each industry are then calculated based on the production costs of supplying regions, the effective distance to these regions, and the index of access to the variety of outputs in the industry relative to the access by other users of the product.” source=”http://www.remi.com/wp-content/uploads/2012/03/economic_geography_linkage52.jpg”]