The GFPM creates projections by setting up a new spatial equilibrium problem for each year of the projection period. The positions of the demand and supply curves, the manufacturing coefficients for paper, and the waste paper recovery rate change over time according to exogenously specified trends (see Exogenous Change sheet). Manufacturing capacity is updated endogenously from period to period, as a function of past demand and the shadow price (profitability) of capacity.
This simple description of the dynamics of the GFPM suggests a number of considerations in making forecasts. Assumptions on GDP growth and timber supply shifts are the most important drivers of model results. One sure way to get dramatic price increases is to impose very high GDP growth with low rates of wood supply increase. Also, excessively tight or loose trade inertia constraints can have important effects on market trajectories. Historical changes in trade can help to set these constraints.
Wastepaper supply is different from the other commodity supplies because it is limited by a function of the previous year's consumption. No upper bound for wastepaper is explicitly entered into the Supply sheet, but the Recycling (Supply) sheet coefficient for the maximum recovery rate, multiplied by total paper consumption in the previous period, creates this bound endogenously. If the maximum recovery rate is specified at 50%, and the previous period's consumption of paper was 400,000 MT, then the upper bound on waste paper supply in this period is implicitly 200,000 MT.
Prices can rise quite sharply if the manufacturing capacity limit is reached. Total capacity change in a model (WORLD or regional) is a function of total past production. This total change in capacity is distributed to regions or countries according to the profitability of additional capacity. The current version of the GFPM has coefficients that insure a long-term ratio of capacity to production of about 1.10 for the paper industry, in agreement with historical data, and 1.15 for solid wood industry. Experience has shown that lower ratios can lead to binding capacity constraints and sharp price increases.
Price divergence among countries is a result of trade inertia constraints, without which prices should equate everywhere. However, loosening trade inertia constraints by too much can lead (particularly smaller) countries to import most of their needs and a projection showing a collapse of their domestic industry. The trade inertia parameters should be based as much as possible on observations of historical trade movements.
Divergence between the WORLD and regional model generally result from improperly aggregated regional data entered into the WORLD model. Experience has shown that this problem is minimized by building the WORLD model parameters as weighted averages of country parameters, with national production or consumption levels serving as weights.