Dynamic Systems Modelling of the North-West Region: 3. Adaptive-Parameter Policy Model

Abstract

This is the third of four papers which will be published in close sequence in this journal. For a general distributed-lag transfer-function model of regional economic structure, the paper examines the nature of patterns of parameter variation that may be present. Methods of estimating such adaptive or innovative changes in parameter variation are then discussed, and one method based upon assuming a random-walk model of parameter behaviour is applied to estimating dynamic parameter trends, shifts, and stochastic variation for a five-equation model of the North-west region. Changes in this model structure are found to characterise, mainly, parameters associated with employment linkage, and migration and industrial-movement responses. In most cases, the employment-exchange areas in the North-west are shown to be increasingly amplifying, rather than damping, national economic fluctuations. An attempt is also made to link the observed shifts in parameter values to changes in policy instruments.