Aggregate Supply in INTERLINK : Model Specification and Empirical Results

This paper describes modifications to, and further developments of, the supply block in the Secretariat's INTERLINK world model as of the autumn of 1985. The objective of the work was to strengthen the role of supply side elements, in particular profitability, in the model. In the process, stockbuilding was endogenised, assigning to inventories an important buffer role between sales and output in the dynamic adjustment process. Price formation has been linked more coherently to the revised supply structure via a dual cost function, and labour supply has been endogenised. The equations described in this paper have been incorporated in the latest version of INTERLINK, the simulation properties of which will be described in a separate forthcoming working paper, "The Structure and Simulation Properties of the OECD INTERLINK Model: An Overview" ...