ABSTRACT
A model, based on Ecuador data from 1950 to 1987, is constructed. The model estimates the impact of different combinations of monetary and fiscal policies on real growth, inflation, the money supply, the market exchange rate, and income distribution. This chapter provides an outline of Ecuadors economic history during the postwar period, and the specific equations of the model. Despite the large influx of revenue from oil, Ecuador sustained substantial trade deficits throughout the last half of the 1970s financed through bank borrowing. International variables in the growth equation include the import content of Gross Domestic Product (GDP), changes in the value of exports, net foreign investment, and net foreign borrowing. In summary, the structure of the model includes five behavioral equations with five endogenous variables: growth, inflation, the money supply, the exchange rate, and the ratio of wages to GDP.
