Measuring the effects of macroeconomic policy in industry economic models: Toward assessment of industrial policy

This study creates a framework for analyzing the industry-level effects of macroeconomic and international policies and events. A macroeconomic-industry model links four-digit models of industry demand and production structure to the Fair macroeconomic model and a neoclassical model of the user cost of capital modified to accommodate disequilibrium in capital input in the key machine-tool-using manufacturing sectors as well as in machine tool production. The model is designed to measure the effects of a number of factors on the demand for two major categories of machine tools: metal cutting (SIC 3541) and metal forming (SIC 3542). Factors whose quantitative impacts are assessed for the 1977-86 period include the investment tax credit, the federal deficit, interest rates, exchange rates, and productivity and technological changes in the domestic and competitive foreign machine-tool industries. (JEL L52, L16, L60).