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Development of models and methodology for forecasting the dynamics of Russian economy in the longrun | 06-04-2011
The project was implemented for the Ministry of Economics of the Russian Federation.

Project Dates: September — December 2010

The purpose of the project was to develop a mathematical model for forecasting macroeconomic indicators of the Russian economy in the long run.

The methodological foundation for our model is Ramsey model with infinitely living individuals, who optimize their multiperiod objective functions. The revenues from international trade are introduced exogenously, as a flow of revenues not related to production and manufacturing. The diffusion of modern technologies and managerial methods from the leader country into Russia brings an increase in labor productivity in manufacturing. The rate of this diffusion and the corresponding growth of labor productivity are assumed to depend on the stock of human capital (qualification of the workforce) and public expenditure into R&D. The average level of qualification of the workforce depends positively on investment in health care and education. Additionally, investment into infrastructure has a positive impact on total factor productivity.

Parameters of the model were calibrated according to the data from Russian national accounts, the data on consumer preferences obtained in the studies for other countries, and estimates of elasticities for corresponding expenditures on accumulation of human capital and on labor productivity from academic and applied literature on economic growth.

The implementation of the model in MATLAB is user friendly. All input parameters are set in the beginning of programming code. Tables with the data on trajectories of exogenous variables for each simulation are read from Excel files. Forecasted values are given in two formats: as Excel tables and as graphs.

The model allows conducting simulations for different macroeconomic scenarios for the years 2010-2030. Major input parameters for these scenarios were: oil and gas prices, export of oil and gas, share of public expenditure in GDP, shares of public expenditure on health care, education, R&D, and infrastructure in GDP. The model was employed to assess the dynamics of the following parameters: per capita private consumption; per capita stock of capital; the share of economically active population in total population; per capita GDP; the ratio of private consumption to GDP; the ratio of GDP to capital; the ratio of labor productivity in Russia to labor productivity in the leader country. Additionally, themodelenabledcalculating: therateofGDPgrowth; the impact of each analyzed component of public expenditure (i.e. on health care, education, R&D, and development of infrastructure) to the rate of economic growth and the rate of GDP growth.
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