NBER Working Paper #3100September 1989

THE MCKIBBIN-SACHS GLOBAL MODEL: THEORY AND SPECIFICATION

ABSTRACT

This paper presents the theoretical underpinnings of the MSG2 simulation modelof the world economy. The MSG2 model is a dynamic general equilibrium model ofthe world economy which pays particular attention to the relation betweenstocks and flows and intertemporal constraints. The formation of expectationsalso plays an important role in the model. In the version presented here theworld is divided into the U.S., Japan, Germany, the rest of the EMS, and therest of the OECD, non-oil developing countries and OPEC.

Warwick J. McKibbinThe Brookings Institution1775 Massachusetts Ave, N.W.Washington, DC 20036

Jeffrey D. SachsDepartment of EconomicsHarvard UniversityCambridge, MA 02138