An Overview of REMI

& REMI Policy Insight®

The Regional Information Center provides economic modeling services featuring Policy Insight®, developed by Regional Economic Models, Inc. (REMI).  The model can be used to predict the economic and demographic effects of policy initiatives.  Policy Insight® answers the "What if...?" questions concerning regional and local economies.  Any type of policy that influences economic activity can be evaluated including economic development, transportation, energy, environmental, and taxation.  TBRPC's version of the model can make predictions in 9 areas:  the counties of (1) Pinellas, (2) Pasco, (3) Hillsborough, (4) Manatee, (5) Hernando, (6) Polk and (7) Sarasota; (8) the Orlando area, which is defined as Brevard, Lake,  Orange, Osceola, Seminole, and Volusia counties; and (9) the State of Florida.  The model can break down predictions into 70 economic sectors and over 6,200 different variables.  Since 1999, numerous studies have included reports for local economic development organizations, the impacts of MLB Spring Training, a Water Plant, a USF solar energy study, the laser optics industry cluster, and many other projects.  

What Is REMI Policy Insight®?

Founded in 1980, Regional Economic Models, Inc. (REMI) constructs models that reveal the economic and demographic effects that policy initiatives or external events may cause on a local economy. REMI model users include national, regional, state and city governments, as well as universities, nonprofit organizations, public utilities and private consulting firms.

REMI Policy Insight®, the newest version of REMI's software, combines years of economic experience with an easy-to-use software interface. A major feature of REMI is that it is a dynamic model which forecasts how changes in the economy and adjustments to those changes will occur on a year-by-year basis. The model is sensitive to a very wide range of policy and project alternatives and to interactions between the regional and national economies. By pointing and clicking, you can answer the toughest "What if...?" questions about federal, state, local or regional economies. REMI is dedicated to continuing economic research combined with quality customer service and support.

Model Introduction

TBRPC's version of REMI Policy Insight® includes a REMI model that has been built especially for the Tampa Bay Region. The model-building system uses hundreds of programs developed over the past two decades to build customized models for each area using data from the Bureau of Economic Analysis, the Bureau of Labor Statistics, the Department of Energy, the Census Bureau and other public sources.

The REMI model is a structural model, meaning that it clearly includes cause-and-effect relationships. The model shares two key underlying assumptions with mainstream economic theory: households maximize utility and producers maximize profits. Since these assumptions make sense to most people, the model can be understood by intelligent lay people as well as trained economists.

In the model, businesses produce goods to sell to other firms, consumers, investors, governments and purchasers outside the region. The output is produced using labor, capital, fuel and intermediate inputs. The demand for labor, capital and fuel per unit of output depends on their relative costs, since an increase in the price of any one of these inputs leads to substitution away from that input to other inputs. The supply of labor in the model depends on the number of people in the population and the proportion of those people who participate in the labor force. Economic migration affects the population size. More people will move into an area if the real after-tax wage rates or the likelihood of being employed increases in a region.

Supply and demand for labor in the model determine the wage rates. These wage rates, along with other prices and productivity, determine the cost of doing business for every industry in the model. An increase in the cost of doing business causes either an increase in price or a cut in profits, depending on the market for the product. In either case, an increase in cost would decrease the share of the local and U.S. market supplied by local firms. This market share combined with the demand described above determines the amount of local output. Of course, the model has many other feedbacks. For example, changes in wages and employment impact income and consumption, while economic expansion changes investment and population growth impacts government spending.

Model Overview

Below is a figure depicting the model. The Output block shows a factory that sells to all the sectors of final demand as well as to other industries. The Labor and Capital Demand block shows how labor and capital requirements depend both on output and their relative costs. Population and Labor Supply are shown as contributing to demand and to wage determination in the product and labor market. The feedback from this market shows that economic migrants respond to labor market conditions. Demand and supply interact in the Wage, Price and Profit block. Once prices and profits are established, they determine market shares, which along with components of demand, determine output.

The REMI model brings together all of the above elements to determine the value of each of the variables in the model for each year in the baseline forecasts. The model includes all the inter-industry relationships that are in an input-output model in the Output block, but goes well beyond the input-output model by including the relationships in all of the other blocks shown in the figure.

In order to broaden the model in this way, it was necessary to estimate key relationships. This was accomplished by using extensive data sets covering all areas in the country. These large data sets and two decades of research effort have enabled REMI to simultaneously maintain a theoretically sound model structure and build a model based on all the relevant data available.

The model has strong dynamic properties, which means that it forecasts not only what will happen but when it will happen. This results in long-term predictions that have general equilibrium properties. This means that the long-term properties of general equilibrium models are preserved without sacrificing the accuracy of event timing predictions and without simply taking elasticity estimates from secondary sources.

For the Greater Tampa Bay area:

The REMI model can be used to predict the economic and demographic effects of policy initiatives. REMI Policy Insight® answers the "What if...?" questions concerning the regional and local economies. Any type of policy that influences economic activity can be evaluated, including economic development, transportation, energy, environmental, and taxation. The model can make predictions in 10 geographic areas:

• The counties of Pinellas, Pasco, Hillsborough, Manatee, Hernando, Polk, and Sarasota (the boundaries of the Tampa Bay Partnership and the University of South Florida service area);
• the Orlando metro area, including Brevard, Lake, Orange, Osceola, Seminole, and Volusia counties;
• the State of Florida; and
• the United States

The REMI model includes over 6,000 individual variables related to demographics, income, labor and capital productivity, energy consumption, occupation mix, wage rates, etcetera. The model can provide historical and forecasted dated related to the variables described above in 53 industrial sectors (listed below) and 606 age/gender/racial cohorts.

REMI is separated into five "blocks"

• Output
• Labor and capital demand
• Population & labor supply
• Wage, price, & profit, and
• Market shares.

Unlike many other linear and static models, the REMI model is dynamic and continually adjust forecasts based on the interaction between the five blocks.

In addition, the model is able to break down employment, productivity, and output forecasts into the following 53 sectors: