Constructing complete demand systems is an example of the ideal type of econometrics. It uses a well-developed theory, an extensive set of data and a refined estimation technique. In particular, a strong relationship between theory and estimation distinguishes it from other empirical economic studies. This strong relationship is at the same time a source of possibilities and a source of problems. Here, the focus will be on some problems caused by the fact that the theory is about individual behaviour while the data is about aggregate behaviour and by the fact that the theory is not much help in specifying the functional form of the system, which is obviously needed for estimation. These two problems are interrelated to a certain extent and have not yet been solved satisfactorily.

When the papers collected in this issue of Recherches Economiques de Louvain were discussed in the Conference on the Italian Economy held at Louvain-la-Neuve in July 1974, Italy was running, together with the UK, a record balance of payments deficit, her creditworthiness was at a low ebb in international financial markets, and she was experiencing, after Japan, the highest inflation rate among OECD countries. These problems were compounded by an extremely weak political situation, managed by a Government that, after having resigned, had been sent back to Parliament for lack of an immediate alternative.

Les événements du passé constituent des guides précieux pour l'appréciation du présent. Cependant ils sont vite oubliés ou ne sont plus qu'un souvenir global, ne permettant aucune comparaison. Au moment d'une grande crise monétaire une tâche de l'économiste est de tirer les enseignements de crises antérieures de même ampleur. Celle de 1870-1874 nous livrerait des réflexions intéressantes sur les modalités de ruptures d'un étalon métallique et ses conséquences pour les encaisses des banques centrales; nous bornerons toutefois notre comparaison à la crise de 1931-1936, qui offre des points plus nombreux de similitude, dans une structure économique plus proche de la nôtre.

Although dynamic models are now an important part of applied demand analysis, some of their fundamental concepts still suffer from a substantial lack of clarity. A particular case in point is the distinction between stock adjustment and habit formation in the Houthakker-Taylor model (1970). Empirical considerations prompted Houthakker and Taylor to specify a single state variable for each good and then to conclude that a good is habit forming or stock adjusting depending on the state variable's sign. However, besides having an obvious drawback of being ex post, this procedure is subject to the further criticism that, by treating expenditures for nondurables and services in the same way as expenditures for durables, it implicitly views habit formation and stock adjustment as arising from symmetrical processes. This is unfortunate, for stock adjustment and habit formation reflect intrinsically different phenomena, and to elaborate upon this, without the constraints imposed by thoughts of immediate empirical application, is one of the primary purposes of this paper.

Monetary research has long remained an uncultivated field in Belgium. Recently however growing interest and contact with foreign research have led to the publication of a number of studies, bearing on some or all of the money flows in the economy.

These recent papers show an encouraging degree of convergence, both in their behavioural assumptions and in their interpretation of the institutional framework. They all in fact derive from the basic approach of Brunner-Metzler, where the money supply is determined by a basis-multiplier relation, as applied to an open economy where the basis partly depends on an exogenous balance of payments.

For the last 25 years the industrial countries of the West have experienced continuous rises in price levels. However, as shown in Table 1, price indexes rose moderately until the end of the sixties but show a sharp acceleration from then onwards. In this paper attempts are made to identify and explain the main causes of that acceleration. It is, of course, obvious that in every country special factors and circumstances contributed to differences in national inflation rates. These factors we shall neglect.

In a similar effort Nordhaus (1972) emphasized that it is difficult to accept the large number of special factors and theories offered to explain the worldwide inflationary phenomenon. After testing, and rejecting as generally applicable, several hypotheses (the monetarist theory, the naive Phillips curve, the expectations Phillips curve, frustration theories, and the Scandinavian model) Nordhaus offers his own interpretation. In a world of interdependent economies a disturbance in one part of the world tends to be transmitted to other parts of the world through linkages in commodity trade and in financial markets. The particular disturbance identified by Nordhaus is the abrupt acceleration of the U.S. price level around 1968. While, as can again be seen from Table 1, U.S. prices were more stable than world market prices before 1968 this was no longer true after 1968.

During the post-war period, and particularly after 1970, one of the main characteristics of the Italian economy has been a strong growth in financial intermediation. The financial assets in the whole have been increasing with an elasticity to money income much higher than one — and in particular the money base and the money supply have been growing with an elasticity of 1.5. In 1951 the ratio of the flow of financial assets to national income was 9 % and reached nearly 30 % in 1973.

When one writes a paper, one hopes for a large hearing. I have reduced my illusions, as to my audience, to those few who have read either Houthakker and Taylor [(1970, chap. V)] of Phlips (1972) or Taylor and Weiserbs (1972). Probably only they could be interested in a presentation of the theory underlying these studies and/or in some improvements in the empirical comparison realized by L. Taylor and myself. There is nothing here for a revolution in the theory of the consumer but only an attempt to ornament the last one.

1. The problems of economic policy in Italy at the present moment must be examined within the wider international, and especially European context. Now, as never before, the direction, the intensity and the timing of internal policies has come to depend on external variables. But such variables are not entirely “acts of God”; they are to a large extend due to international economic policies and to domestic policies in other countries. I wish to concentrate on how this interdependence of national and international policies has worked. I submit that it has worked perversely and that such perversity could, and perhaps still can, be avoided.

Anelise est construit selon le schéma classique de tous les modèles dits “keynesiens”, comportant deux blocs importants: un bloc “revenus-dépenses” et un bloc “emploi-prix-salaires”.

Dans le premier bloc, se forme Y, la dépense (ou le revenu) de la nation par addition des composantes de la demande: consommation privée (C), consommation et investissements publics (G et IG) autres investissements (I), exportation (X) et importation (M); le deuxième bloc explique la formation des prix (P) à partir d'une des composantes principales, les salaires (W) dont l'évolution est liée au taux de chômage (U) résultant de la différence entre l'offre d'emploi (OE) et la demande d'emploi (DE) exogène.

For several years the problem of international monetary reform has been discussed ad nauseam in terms of:

— convertibility of «overhang» dollar balances

— the supply of an «adequate» level of international reserves and the official price of gold

— the selection of a regime of exchange rates.

However, little new thought has been given to the issue of what it is that the exchange rate is supposed to measure and what it is that a regime of international payments is supposed to accomplish.

Instead, in most discussions, implicitly or explicitly, it has been taken for granted that there must be some set of «equilibrium exchange rates» for which international trade flows and welfare are somewhat optimized.

Cette étude est consacrée à la mise au point et à l'analyse d'une projection d'ensemble établie à l'aide du modèle RENA. La projection ci-après peut être considérée comme un essai officieux — et encore imparfait sur plus d'un point - d'actualiser l'ancienne projection dite de “référence” publiée par le Bureau du Plan en décembre 1973 en vue de servir de base aux travaux préparatoires à la définition des orientations du Plan 1976-1980.

Une première section rappellera les caractéristiques du modèle RENA, tel qu'il a été fourni au Bureau du Plan par les centres universitaires qui l'ont construit, ainsi que les principaux aménagements qui y ont été apportés progressivement par l'équipe économétrique de la Direction Générale du Bureau du Plan.

To discuss the problem of international interdependence of prices it is advisable, first of all, to distinguish between short-run and long-run changes. Such a distinction may be based on the usual assumption that plants and other fixed assets are given in the short and variable in the long run; this distinction, however, may be supplemented by the notion that fixed assets may vary even in the short run, but, if so, they vary as a consequence of decisions taken in previous periods, so that in the short run variations in fixed assets (and in productive capacity) are to be considered as externally given. In practice, the year-to-year data can be taken as the empirical counterpart of short-run changes, whereas pluriennal (two or three-year) moving averages can be taken as the counterpart of long-run changes.

L'introduction des stocks dans la fonction d'utilité, telle que le suggèrent Houthakker et Taylor [1970, chapitre 5] permet la construction et l'estimation de systèmes de demande complets dynamiques et théoriquement plausibles. Ainsi sont apparus les modèles quadratiques additifs d'Houthakker et Taylor, obtenus en dynamisant la fonction d'utilité quadratique de Gossen et une version dynamique du modèle linéaire des dépenses, élaborée par Phlips [1972] en dynamisant la fonction d'utilité de Stone-Geary.

Ces dernières années, l'attention traditionnellement centrée sur la demande de monnaie s'est progressivement orientée vers l'étude du processus par lequel, dans un système monétaire donné, la monnaie était offerte.

L'intérêt porté aux mécanismes d'offre de monnaie procède du fait que, dans le cas où on reconnaît à la masse monétaire une action décisive sur les variables du secteur réel, il est important de pouvoir déterminer dans quelle mesure cette masse monétaire peut être influencée par les responsables de la politique monétaire.

Le rapport étude-emploi est éminement ambigu. Une adéquation trop stricte est à la fois aléatoire et dangereuse. Par contre, l'ignorance du marché du travail, de ses cloisonnements, de ses voies d'accès, de ses canaux de mobilité, de ses exigences, de ses indifférences, de ses gratifications, etc. ne se justifie plus à un moment où, d'une part, la demande d'éducation croît d'années en années et, d'autre part, la conjoncture tant belge qu'internationale inquiète les économistes. A cet égard, le sort des universitaires, parce que personnel hautement qualifié, a toujours été considéré comme privilégié; toutefois ce privilège s'amenuise dit-on; certains facteurs minent leur position concurrentielle; le ralentissement de l'économie se traduit dans l'offre d'emploi.

The neoclassical model of consumer behavior, hereafter generally called utility theory, both serves as the basis for modern welfare theory and draws some of its support from the usefulness of that theory to the economics profession. Modern welfare theory, however, posits a direct correspondence between market behavior and individual welfare, a correspondence that does not exist in modern market economies. In such economies, where information is imperfect and learning is important, utility theory also fails to describe or to facilitate analysis of important aspects of consumers' behavior. Thus it provides neither a sound normative theory nor a generally useful positive theory of consumer' behavior. These assertions are amplified and defended in Sections I - III below.

At the occasion of the 40th birthday of the Bulletin, which was to become the present Recherches Economiques de Louvain, I would like first of all to express, on behalf of the Economics Faculty in Antwerp, a respectful salute to Professor Dupriez, the founder, spiritual father and stimulator of this journal. Many of my senior colleagues at the Faculty have been his student and it has always been very clear to all of us in Antwerp, that the point of his teaching and research has not been missed.

I may add that for our team at the Research Center in Antwerp the example that Prof. Dupriez has set in the Bulletin, the thoroughly scholarly approach to real world problems is a sure and guiding light as to the spirit in which we ourselves should tackle the problems of today.

The task of re-stating the theory of the true cost-of-living index when preferences are subject to taste change was undertaken by F. Fisher and K. Shell in their contribution to the Hicks' Festschrift [Fisher-Shell (1969)]. It was succeeded by a paper, co-authored by L. Phlips and R. Sanz-Ferrer (1972), that proposed an index different from the one elaborated by Fisher and Shell. They also expounded an algorithm for calculating the two indexes with the help of Phlips' dynamic linear expenditure system [Phlips (1972)].

The purpose of this paper is to extend the work of Fisher and Shell in three directions. First, taste change is parametrised in the utility function in such a way as to allow its application to Phlips' dynamic system. Secondly, a broader definition of the true cost-of-living index is provided. Thirdly, the influence of taste change on the index is less restrictive than in the Fisher-Shell case without, we believe, incurring the reproach of cardinality. It is patterned on the Phlips-Sanz-Ferrer approach.