Extended IS-LM model - construction and analysis of behavior

Size: px
Start display at page:

Download "Extended IS-LM model - construction and analysis of behavior"

Transcription

1 Extended IS-LM model - construction and analysis of behavior David Martinčík Department of Economics and Finance, Faculty of Economics, University of West Bohemia, martinci@kef.zcu.cz Blanka Šedivá Department of Mathematics, Faculty of Applied Sciences, University of West Bohemia, sediva@kma.zcu.cz Abstract The article presents an extended IS-LM model, its construction and modification, an analysis of its behavior and a statistical verification on data of the Czech economy. The extended IS-LM model is used for analyses of efficiency of macroeconomics stabilization policy in Czech Republic under period IS-LM model in various modifications always presents the standard approach of the mainstream macroeconomics to the efficiency of the stabilization policy. The fundamental diagram of the model was developed by John Richard Hicks in 1937 and it included only 3 market the aggregate market of products and services (real sector of the economy) and the aggregate money market and the aggregate market of others financial assets (monetary sector). The platform of extended model is connection between the real and the monetary sector by way of interest rate (keynesian transmission mechanism). The model describes an internal balance of the economy that is determined by the fiscal policy, the monetary policy and the exchange rate policy; further the policy of inflationary expectation and the characteristics of yield curve. These five determinants of aggregate product are statistically tested by the help of linear regression model including different time lags. Keywords IS-LM model, yield curve, expected inflation, macroeconomic stabilization policy JEL: E12 1. IS-LM and yield curve basic model The IS-LM model includes at the same time two balances, the balance of aggregate market of goods and services (product) and the balance of aggregate market of money and other financial assets. We use the linear and static model. The IS curve describes the balance of aggregate market of product: Y = α (A b i RL + v E D/F *P F /P D ) (1) Y α real gross domestic product (it is income) static multiplier of autonomous expenditure (i.e. influence the autonomous expenditure on real gross domestic product) α = 1 / (1 mpc*(1 mrit)); mpc is marginal propensity to consumption and mrit is marginal rate of income taxation

2 A b i RL v E D/F *P F /P D autonomous expenditure (private consumption and investment expenditure, public expenditure, foreign demand a import expenditure, all are independent on income, interest rate and real exchange rate) autonomous expenditure dependence on long term real interest rate real long term interest rate autonomous expenditure dependence on real exchange rate real exchange rate (nominal exchange rate multiple by the foreign and domestic price level ratio) The curve LM describes the balance of aggregate market of money and other financial assets: i NS = 1/h (k Y M/P D ) (2) i NS h k M/P D nominal short term interest rate demand for real money dependence on short term nominal interest rate (so-called speculative demand for real money) demand for real money dependence on real gross domestic product (so-called transaction/income demand for real money) real money (nominal quantity of money divide by domestic price level) It is needful to put in the yield curve and expected inflation between the curve IS and LM, for extension of the model. This way we transfer the short term nominal interest rate (which is determinate on aggregate market of money) to long term real interest rate (which influences the private consumption and investment expenditure). The characteristic of the yield curve is following: i NL = i NS + ε + λ + σ (3a) i NL ε λ σ nominal long term interest rate expectation of future nominal short term interest rate development liquidity premium risk premium Through the connection of yield curve and expected inflation we obtain the long term real interest rate: i RL = i NS + ε + λ + σ + π e (3b) is π e expected inflation The LM curve (2) extended of yield curve and expected inflation (3b) is following: i RL = 1/h (k Y M/P D ) + ε + λ + σ + π e (4) We solve equation IS (1) and extended LM (4) and get the determination of gross domestic product (income): Y = β A + β b/h M/P D + β v E D/F *P F /P D + β b π e β b (ε + λ + σ) (5a) β = αh/(h + αbk) we replace

3 β 1 = β β 2 = β b/h β 3 = β v β 4 = β b β 5 = β b (ε + λ + σ) R = E D/F *P F /P D autonomous expenditure multiplier, it is fiscal policy multiplier real money multiplier, it is monetary policy multiplier real exchange rate multiplier multiplier of expected inflation equation term containing the yield curve real exchange rate so we get the equation: Y = β 1 A + β 2 M/P D + β 3 R + β 4 π e + β 5 (5b) This equation we first multiple by domestic price level (we drop the index, so P D = P) and then date for period t and t-1. These two equations (for date t and t-1) we deduct and obtain the increase version 1 : (YP) = β 1 (AP) + β 2 M + β 3 (RP) + β 4 (π e P)+ β 5 P (5c) YP AP M RP π e P increase nominal gross domestic product (nominal income), i.e. YP = Y * P nominal autonomous expenditure, i.e. AP = A * P nominal quantity of money real exchange rate multiplied by domestic price level, i.e. RP = R * P expected inflation multiplied by domestic price level, i.e. π e P = π e * P The equation (5c) we could read this way: Increase of nominal gross domestic product = fiscal policy + monetary policy + exchange rate policy multiple by price level + expected inflation multiple by price level + yield curve parameters multiple by price level (all terms are multiplied by relevant multipliers) The equation (5c) indicates the determinants of nominal gross domestic product and is the equation of aggregate demand. The different dating of separate variables - determinants of nominal product, is useful for time lag analysis. The date basis was quarterly time series of Czech economy from 1998 to 2005 (period of relatively stable economics development after currency turbulences in 1997). There were linear regress equations analyzed in MATLAB. These equations were developed from 8 possibilities by each variable. It was allowed the time lag from 0 to 6 quarters (7 possibilities), and the missing variable (+1). The total number of equations is 8 5 = then. The equation (5c) was transformed to econometric form (accidental variable µ) and there was also added the absolute equation term β 0. The estimated linear regress equation is following: (YP t )= β 0 + β 1 (AP t-n ) + β 2 M t-n + β 3 (RP t-n ) + β 4 (π e P t-n ) + β 5 P t-n + µ (6) are the indexes: t current period t-n last period, as n = 0,, 6 1 The increase version is useful in the situation, when we don t know the total autonomous expenditure in the economy. Further we use this simple abstraction: the private and foreign components of autonomous expenditure are constant and then the change of total autonomous expenditure must be caused only by public expenditure. This way the total autonomous expenditure could be replaced by the fiscal policy.

4 The 25 best solutions according to the determination R 2 are in the table: Interval Variable time lag (n) Multiplier (AP) M (RP) (π e P) P β 0 β 1 β 2 β 3 β 4 β 5 R 2 estimation ,66-0, ,86 no ,84 0, ,85 no ,60-0, ,85 no ,29 0, ,85 no ,73-0, ,84 no ,54-0, ,84 yes ,55-0, ,84 yes ,62 0, ,84 yes ,68-0, ,83 yes ,56-0, ,83 no ,62-0, ,83 no ,07 0, ,83 no ,84-0, ,83 yes ,42-0, ,83 no ,93 0, ,82 no ,03 0, ,82 no ,17 0, ,82 no ,51-0, ,82 no ,68-0, ,82 no ,82-0, ,82 no ,84-0, ,82 no ,66-0, ,82 no NaN ,65-0, NaN ,82 no ,79-0, ,82 yes ,88 0, ,82 no (NaN not a number, i.e. a variable having non-numeric value Interval estimation no one or more variables interval estimation contains zero) The different time lags and different multipliers β 1 till β 5 (there are also negative values often) are the effect of unstability of transmissions mechanisms in the Czech economy. The low sizes of multipliers (especially β 1 and β 2 ) detect the low efficiency of stabilization economics policy generally. Next the absolute equation term β 0 is statistically significant and it means, that the growth of Czech economy is the effect of the other factors (long run growth factors), not effect of the terms of the equation of aggregate demand (short run economics policy). The increase of Czech nominal gross domestic product per quarter is between 12 and 19 billions CZK, so the annual long run trend is between 48 and 76 billions CZK and it is out of the control of stabilization policy. 2. First modification dynamic model The first modification of the basic model consists in its transformation in dynamic form. We replace the variables increases by theirs growth rate. The equation (5c) is transformed to dynamic form in the way that both sides of equation we divide by YP t-1, further we multiple each term of right side by suitable one (e.g. the first term we multiple by AP t-1 / AP t-1 ). This way the multipliers are changed to elasticity and the increases to percentual growth rate. The dynamic equation is following: yp = γ 1 ap + γ 2 m + γ 3 rp + γ 4 π e p + γ 5 p (7a)

5 yp ap m rp π e p p γ 1 γ 2 γ 3 γ 4 γ 5 nominal gross domestic product (nominal income) growth rate nominal autonomous expenditure growth rate nominal quantity of money growth rate growth rate of real exchange rate multiplied by domestic price level growth rate of expected inflation multiplied by domestic price level domestic price level growth rate = inflation nominal gross domestic product (yp) elasticity to autonomous expenditure yp elasticity to nominal quantity of money yp elasticity to real exchange rate multiplied by domestic price level yp elasticity to expected inflation multiplied by domestic price level yp elasticity to inflation The estimated linear regress equation is following: yp t = γ 0 + γ 1 ap t-n + γ 2 m t-n + γ 3 rp t-n + γ 4 π e p t-n + γ 5 p t-n + µ (7b) γ 0 absolute equation term µ accidental variable the indexes: t current period t-n last period, as n = 0,, 6 The 25 best solutions according to the determination R 2 are in following table: Interval Variable time lag (n) Multiplier ap m rp π e p p γ 0 γ 1 γ 2 γ 3 γ 4 γ 5 R 2 estimation ,02-0,05-0,41-0,16-0,01 0,73 0,90 no ,02-0,10-0,29-0,08 0,01 0,57 0,90 no ,02-0,06-0,21-0,07 0,01 0,45 0,90 no ,02-0,06-0,35-0,13 0,01 0,60 0,89 no ,02-0,05-0,38-0,13 0,01 0,66 0,89 no ,02 0,05-0,25-0,08 0,01 0,42 0,89 no ,02-0,05-0,24-0,07 0,01 0,49 0,89 no ,02-0,04-0,25-0,10 0,01 0,51 0,89 no ,02-0,07-0,21-0,07 0,01 0,52 0,89 no ,02-0,04-0,23-0,10 0,01 0,55 0,89 no ,02-0,04-0,40-0,11 0,01 0,62 0,89 no ,02-0,05-0,43-0,14 0,01 0,67 0,89 no ,02-0,04-0,26-0,09 0,01 0,55 0,89 no ,02-0,03-0,41-0,15-0,01 0,71 0,88 no ,02-0,03-0,24-0,09 0,01 0,54 0,88 no ,02 0,04-0,23-0,08 0,01 0,42 0,88 no ,02-0,03-0,23-0,07 0,01 0,44 0,88 no ,02-0,03-0,23-0,10 0,01 0,54 0,88 no ,02-0,03-0,37-0,13 0,01 0,62 0,88 no ,02 0,02-0,24-0,10 0,01 0,53 0,88 no ,02-0,11-0,33-0,09 0,00 0,58 0,88 no ,02-0,03-0,39-0,13 0,01 0,66 0,88 no ,02-0,03-0,40-0,11 0,01 0,68 0,88 no ,02-0,05-0,44-0,12 0,01 0,62 0,88 no

6 ,02 0,01-0,25-0,10 0,01 0,52 0,88 no (Interval estimation no one or more variables interval estimation contains zero) This model shows better results (determination R 2 ) than the basic model. The sizes of elasticities are to near to zero and the interval estimations are unreliable then. There are often negative values and it shows the unstability of transmissions mechanisms as well as the basic (statical) model. The stable estimation value shows only the absolute term the long run growth of economy. 3. Second modification time lag in product (convergent geometrical series of multipliers efficiency) The efficiency of the economics policy is spread out the time and is going through the private consumption and investment expenditures. Therefore, the stabilization policy is exogenous in the model and its efficiency describes the sum of geometrical series of the private expenditure increase. The impact of stabilization policy on gross domestic product proceeds in exponential form: ω k = ν k+1 (8) ν < 1 We transform the equation (5c) to the form: 4 k= 0 ω k (YP t+k ) = β 1 (AP t-n ) + β 2 M t-n + β 3 (RP t-n ) + β 4 (π e P t-n ) + β 5 P t-n (9) the indexes: t current period t-n last period, as n = 0,, 2 t+k future period 2, as k = 0,, 4 Estimated econometric equation is following: 4 k= 0 ν k+1 (YP t+k ) = β 0 + β 1 (AP t-n ) + β 2 M t-n + β 3 (RP t-n ) + β 4 (π e P t-n ) + β 5 P t-n + µ (10) The 25 best solutions according to the determination R 2 are in following table: Interval Variable time lag (n) Multiplier (AP) M (RP) (π e P) P β 0 β 1 β 2 β 3 β 4 β 5 R 2 estimation ,71-0, ,81 no ,58-0, ,81 no ,23-0, ,80 no ,71 0, ,80 no ,27-0, ,80 no ,65-0, ,80 no NaN ,70-0, NaN ,80 no ,25-0, ,80 no ,35-0, ,79 no ,69 0, ,79 no 0 2 NaN ,41-0,09 NaN ,79 no 2 If the total size of multiplier is 2, then in five round (this is period t+4) is the efficiency 1,9375. So it is acceptable to ignore the period t+5 and further.

7 ,23 0, ,79 no ,26-0, ,79 no ,08-0, ,79 no ,59-0, ,79 no ,75-0, ,79 no ,26-0, ,79 no ,24 0, ,79 no ,07-0, ,78 no ,69-0, ,78 no NaN ,73-0, NaN ,78 no ,37-0, ,78 no ,10 0, ,78 no 0 2 NaN ,42-0,11 NaN ,78 no ,17-0, ,78 no (NaN not a number, i.e. a variable having non-numeric value Interval estimation no one or more variables interval estimation contains zero) In this model is the number of equations lower the in the previous. It was allowed the time lag from 0 to 2 quarters and it gives only four possibilities (incl. missing of variable), the number of equation is then 4 5 =1024. This impacts the decreasing of attained determination R 2. It is fully according to the theory on the average higher time lag by monetary policy ( M) then by the fiscal policy ( AP). They are often contained the unstable or negative sizes of multipliers and this validate the unstability of transmissions mechanisms and low efficiency of stabilization policy over again. Only the absolute term, that includes the long run growth factors, shows stable estimates again. References [1] BERNANKE, B. S., WOODFORD, M., Inflation Forecasts and Monetary Policy. NBER Working Paper, No. 6157, [2] DORNBUSCH, R., FISCHER, S., Makroekonomie. Praha, SPN, [3] HENDRY, D. F., Dynamic Econometrics. Oxford, Oxford University Press, [4] HU, Z., The Yield Curve and Real Activity. IMF Staff Paper, Vol. 40, No.4, International Monetary Fund, December [5] PESARAN, M. H., WICKENS, M. R., Handbook of Applied Econometrics, volume I: Macroeconomics. Oxford, Blackwell Publisher Inc., 1999.

This PDF is a selection from an out-of-print volume from the National Bureau of Economic Research

This PDF is a selection from an out-of-print volume from the National Bureau of Economic Research This PDF is a selection from an out-of-print volume from the National Bureau of Economic Research Volume Title: A Theoretical Framework for Monetary Analysis Volume Author/Editor: Milton Friedman Volume

More information

Identifying the Monetary Policy Shock Christiano et al. (1999)

Identifying the Monetary Policy Shock Christiano et al. (1999) Identifying the Monetary Policy Shock Christiano et al. (1999) The question we are asking is: What are the consequences of a monetary policy shock a shock which is purely related to monetary conditions

More information

Keynesian Macroeconomic Theory

Keynesian Macroeconomic Theory 2 Keynesian Macroeconomic Theory 2.1. The Keynesian Consumption Function 2.2. The Complete Keynesian Model 2.3. The Keynesian-Cross Model 2.4. The IS-LM Model 2.5. The Keynesian AD-AS Model 2.6. Conclusion

More information

Mankiw Chapter 11. Aggregate Demand I. Building the IS-LM Model

Mankiw Chapter 11. Aggregate Demand I. Building the IS-LM Model Mankiw Chapter 11 Building the IS-LM Model 0 IN THIS CHAPTER, WE WILL COVER: the IS curve and its relation to: the Keynesian cross the LM curve and its relation to: the theory of liquidity preference how

More information

IS-LM Analysis. Math 202. Brian D. Fitzpatrick. Duke University. February 14, 2018 MATH

IS-LM Analysis. Math 202. Brian D. Fitzpatrick. Duke University. February 14, 2018 MATH IS-LM Analysis Math 202 Brian D. Fitzpatrick Duke University February 14, 2018 MATH Overview Background History Variables The GDP Equation Definition of GDP Assumptions The GDP Equation with Assumptions

More information

Y t = log (employment t )

Y t = log (employment t ) Advanced Macroeconomics, Christiano Econ 416 Homework #7 Due: November 21 1. Consider the linearized equilibrium conditions of the New Keynesian model, on the slide, The Equilibrium Conditions in the handout,

More information

Assignment #5. 1 Keynesian Cross. Econ 302: Intermediate Macroeconomics. December 2, 2009

Assignment #5. 1 Keynesian Cross. Econ 302: Intermediate Macroeconomics. December 2, 2009 Assignment #5 Econ 0: Intermediate Macroeconomics December, 009 Keynesian Cross Consider a closed economy. Consumption function: C = C + M C(Y T ) () In addition, suppose that planned investment expenditure

More information

Two Models of Macroeconomic Equilibrium

Two Models of Macroeconomic Equilibrium Two Models of Macroeconomic Equilibrium 1 The Static IS-LM Model The model equations are given as C η +γ(y T) (1) T τy (2) I α r (3) G T (4) L φy θr (5) M µ (6) Y C +I +G (7) L M (8) where η,α,,φ,θ,µ >

More information

The TransPacific agreement A good thing for VietNam?

The TransPacific agreement A good thing for VietNam? The TransPacific agreement A good thing for VietNam? Jean Louis Brillet, France For presentation at the LINK 2014 Conference New York, 22nd 24th October, 2014 Advertisement!!! The model uses EViews The

More information

EXAMINATION QUESTIONS 63. P f. P d. = e n

EXAMINATION QUESTIONS 63. P f. P d. = e n EXAMINATION QUESTIONS 63 If e r is constant its growth rate is zero, so that this may be rearranged as e n = e n P f P f P d P d This is positive if the foreign inflation rate exceeds the domestic, indicating

More information

Final Exam. You may not use calculators, notes, or aids of any kind.

Final Exam. You may not use calculators, notes, or aids of any kind. Professor Christiano Economics 311, Winter 2005 Final Exam IMPORTANT: read the following notes You may not use calculators, notes, or aids of any kind. A total of 100 points is possible, with the distribution

More information

Department of Economics, UCSB UC Santa Barbara

Department of Economics, UCSB UC Santa Barbara Department of Economics, UCSB UC Santa Barbara Title: Past trend versus future expectation: test of exchange rate volatility Author: Sengupta, Jati K., University of California, Santa Barbara Sfeir, Raymond,

More information

Toulouse School of Economics, Macroeconomics II Franck Portier. Homework 1 Solutions. Problem I An AD-AS Model

Toulouse School of Economics, Macroeconomics II Franck Portier. Homework 1 Solutions. Problem I An AD-AS Model Toulouse School of Economics, 2009-200 Macroeconomics II Franck ortier Homework Solutions max Π = A FOC: d = ( A roblem I An AD-AS Model ) / ) 2 Equilibrium on the labor market: d = s = A and = = A Figure

More information

THE LONG-RUN DETERMINANTS OF MONEY DEMAND IN SLOVAKIA MARTIN LUKÁČIK - ADRIANA LUKÁČIKOVÁ - KAROL SZOMOLÁNYI

THE LONG-RUN DETERMINANTS OF MONEY DEMAND IN SLOVAKIA MARTIN LUKÁČIK - ADRIANA LUKÁČIKOVÁ - KAROL SZOMOLÁNYI 92 Multiple Criteria Decision Making XIII THE LONG-RUN DETERMINANTS OF MONEY DEMAND IN SLOVAKIA MARTIN LUKÁČIK - ADRIANA LUKÁČIKOVÁ - KAROL SZOMOLÁNYI Abstract: The paper verifies the long-run determinants

More information

Lars Svensson 2/16/06. Y t = Y. (1) Assume exogenous constant government consumption (determined by government), G t = G<Y. (2)

Lars Svensson 2/16/06. Y t = Y. (1) Assume exogenous constant government consumption (determined by government), G t = G<Y. (2) Eco 504, part 1, Spring 2006 504_L3_S06.tex Lars Svensson 2/16/06 Specify equilibrium under perfect foresight in model in L2 Assume M 0 and B 0 given. Determine {C t,g t,y t,m t,b t,t t,r t,i t,p t } that

More information

+ τ t R t 1B t 1 + M t 1. = R t 1B t 1 + M t 1. = λ t (1 + γ f t + γ f t v t )

+ τ t R t 1B t 1 + M t 1. = R t 1B t 1 + M t 1. = λ t (1 + γ f t + γ f t v t ) Eco504, Part II Spring 2006 C. Sims FTPL WITH MONEY 1. FTPL WITH MONEY This model is that of Sims (1994). Agent: [ ] max E β t log C t {C t,m t,b t } t=0 s.t. C t (1 + γ f (v t )) + M t + B t + τ t R t

More information

Lecture 2 Macroeconomic Model of China by Simultaneous Equations

Lecture 2 Macroeconomic Model of China by Simultaneous Equations Lecture 2 Macroeconomic Model of China by Simultaneous Equations January 8, 2007 1. Introduction... 2 2. Simultaneous-equation Modeling the Chinese Macro-economy... 2 2.1 Aggregate Demand Model... 3 2.2

More information

The Drachma/Deutschemark Exchange Rate, : A Monetary Analysis

The Drachma/Deutschemark Exchange Rate, : A Monetary Analysis The Drachma/Deutschemark Exchange Rate, 980-997: A Monetary Analysis by Athanasios P. Papadopoulos (University of Crete) and George Zis (Manchester Metropolitan University) Abstract: The validity of the

More information

1. Money in the utility function (start)

1. Money in the utility function (start) Monetary Economics: Macro Aspects, 1/3 2012 Henrik Jensen Department of Economics University of Copenhagen 1. Money in the utility function (start) a. The basic money-in-the-utility function model b. Optimal

More information

Financial Factors in Economic Fluctuations. Lawrence Christiano Roberto Motto Massimo Rostagno

Financial Factors in Economic Fluctuations. Lawrence Christiano Roberto Motto Massimo Rostagno Financial Factors in Economic Fluctuations Lawrence Christiano Roberto Motto Massimo Rostagno Background Much progress made on constructing and estimating models that fit quarterly data well (Smets-Wouters,

More information

Chapter 4 AD AS. O. Afonso, P. B. Vasconcelos. Computational Economics: a concise introduction

Chapter 4 AD AS. O. Afonso, P. B. Vasconcelos. Computational Economics: a concise introduction Chapter 4 AD AS O. Afonso, P. B. Vasconcelos Computational Economics: a concise introduction O. Afonso, P. B. Vasconcelos Computational Economics 1 / 32 Overview 1 Introduction 2 Economic model 3 Numerical

More information

General Examination in Macroeconomic Theory SPRING 2013

General Examination in Macroeconomic Theory SPRING 2013 HARVARD UNIVERSITY DEPARTMENT OF ECONOMICS General Examination in Macroeconomic Theory SPRING 203 You have FOUR hours. Answer all questions Part A (Prof. Laibson): 48 minutes Part B (Prof. Aghion): 48

More information

Inflation Report April June 2012

Inflation Report April June 2012 August, 212 Outline 1. External Conditions 2. Economic Activity in Mexico 3. Monetary Policy and Inflation Determinants. Forecasts and Balance of Risks External Conditions Global economic growth slowed

More information

International Macro Finance

International Macro Finance International Macro Finance Economies as Dynamic Systems Francesco Franco Nova SBE February 21, 2013 Francesco Franco International Macro Finance 1/39 Flashback Mundell-Fleming MF on the whiteboard Francesco

More information

An Empirical Analysis of RMB Exchange Rate changes impact on PPI of China

An Empirical Analysis of RMB Exchange Rate changes impact on PPI of China 2nd International Conference on Economics, Management Engineering and Education Technology (ICEMEET 206) An Empirical Analysis of RMB Exchange Rate changes impact on PPI of China Chao Li, a and Yonghua

More information

Lecture 3, November 30: The Basic New Keynesian Model (Galí, Chapter 3)

Lecture 3, November 30: The Basic New Keynesian Model (Galí, Chapter 3) MakØk3, Fall 2 (blok 2) Business cycles and monetary stabilization policies Henrik Jensen Department of Economics University of Copenhagen Lecture 3, November 3: The Basic New Keynesian Model (Galí, Chapter

More information

Dynamics and Monetary Policy in a Fair Wage Model of the Business Cycle

Dynamics and Monetary Policy in a Fair Wage Model of the Business Cycle Dynamics and Monetary Policy in a Fair Wage Model of the Business Cycle David de la Croix 1,3 Gregory de Walque 2 Rafael Wouters 2,1 1 dept. of economics, Univ. cath. Louvain 2 National Bank of Belgium

More information

Economics II. Labor Market, Unemployment and the Phillips Curve, Part II

Economics II. Labor Market, Unemployment and the Phillips Curve, Part II Economics II Labor Market, Unemployment and the Phillips Curve, Part II Unemployment and Phillips Curve its characteristics and importance The aim of this lecture is to explain the original Phillips curve,

More information

Impact Analysis of Economic Linkages of South Korea with North Korea Using a CGE Model (draft version)

Impact Analysis of Economic Linkages of South Korea with North Korea Using a CGE Model (draft version) Comments Only Impact Analysis of Economic Linkages of South Korea with North Korea Using a CGE Model (draft version) Euijune Kim Professor, Department of Agricultural Economics and Rural Development and

More information

Theoretical premises of the Keynesian approach

Theoretical premises of the Keynesian approach origin of Keynesian approach to Growth can be traced back to an article written after the General Theory (1936) Roy Harrod, An Essay in Dynamic Theory, Economic Journal, 1939 Theoretical premises of the

More information

Getting to page 31 in Galí (2008)

Getting to page 31 in Galí (2008) Getting to page 31 in Galí 2008) H J Department of Economics University of Copenhagen December 4 2012 Abstract This note shows in detail how to compute the solutions for output inflation and the nominal

More information

Identifying Aggregate Liquidity Shocks with Monetary Policy Shocks: An Application using UK Data

Identifying Aggregate Liquidity Shocks with Monetary Policy Shocks: An Application using UK Data Identifying Aggregate Liquidity Shocks with Monetary Policy Shocks: An Application using UK Data Michael Ellington and Costas Milas Financial Services, Liquidity and Economic Activity Bank of England May

More information

Toulouse School of Economics, Macroeconomics II Franck Portier. Homework 1. Problem I An AD-AS Model

Toulouse School of Economics, Macroeconomics II Franck Portier. Homework 1. Problem I An AD-AS Model Toulouse School of Economics, 2009-2010 Macroeconomics II Franck Portier Homework 1 Problem I An AD-AS Model Let us consider an economy with three agents (a firm, a household and a government) and four

More information

Macroeconomics II. Dynamic AD-AS model

Macroeconomics II. Dynamic AD-AS model Macroeconomics II Dynamic AD-AS model Vahagn Jerbashian Ch. 14 from Mankiw (2010) Spring 2018 Where we are heading to We will incorporate dynamics into the standard AD-AS model This will offer another

More information

Dynamic AD-AS model vs. AD-AS model Notes. Dynamic AD-AS model in a few words Notes. Notation to incorporate time-dimension Notes

Dynamic AD-AS model vs. AD-AS model Notes. Dynamic AD-AS model in a few words Notes. Notation to incorporate time-dimension Notes Macroeconomics II Dynamic AD-AS model Vahagn Jerbashian Ch. 14 from Mankiw (2010) Spring 2018 Where we are heading to We will incorporate dynamics into the standard AD-AS model This will offer another

More information

Chap. II: Fiscal Multipliers. L3 TSE: Macroeconomics 2014

Chap. II: Fiscal Multipliers. L3 TSE: Macroeconomics 2014 Chap. II: Fiscal Multipliers Patrick Fève Toulouse School of Economics GREMAQ, IDEI and IUF Adresse e-mail: patrick.feve@tse-eu.fr Internet: See the Website of TSE MF 508 L3 TSE: Macroeconomics 2014 Thomas

More information

Macroeconomics Theory II

Macroeconomics Theory II Macroeconomics Theory II Francesco Franco Nova SBE February 2012 Francesco Franco Macroeconomics Theory II 1/31 Housekeeping Website TA: none No "Mas-Collel" in macro One midterm, one final, problem sets

More information

Foundations of Modern Macroeconomics B. J. Heijdra & F. van der Ploeg Chapter 6: The Government Budget Deficit

Foundations of Modern Macroeconomics B. J. Heijdra & F. van der Ploeg Chapter 6: The Government Budget Deficit Foundations of Modern Macroeconomics: Chapter 6 1 Foundations of Modern Macroeconomics B. J. Heijdra & F. van der Ploeg Chapter 6: The Government Budget Deficit Foundations of Modern Macroeconomics: Chapter

More information

A Dynamic Model of Aggregate Demand and Aggregate Supply

A Dynamic Model of Aggregate Demand and Aggregate Supply A Dynamic Model of Aggregate Demand and Aggregate Supply 1 Introduction Theoritical Backround 2 3 4 I Introduction Theoritical Backround The model emphasizes the dynamic nature of economic fluctuations.

More information

Signaling Effects of Monetary Policy

Signaling Effects of Monetary Policy Signaling Effects of Monetary Policy Leonardo Melosi London Business School 24 May 2012 Motivation Disperse information about aggregate fundamentals Morris and Shin (2003), Sims (2003), and Woodford (2002)

More information

Fiscal Multipliers in a Nonlinear World

Fiscal Multipliers in a Nonlinear World Fiscal Multipliers in a Nonlinear World Jesper Lindé and Mathias Trabandt ECB-EABCN-Atlanta Nonlinearities Conference, December 15-16, 2014 Sveriges Riksbank and Federal Reserve Board December 16, 2014

More information

Macroeconomics Theory II

Macroeconomics Theory II Macroeconomics Theory II Francesco Franco Nova SBE March 9, 216 Francesco Franco Macroeconomics Theory II 1/29 The Open Economy Two main paradigms Small Open Economy: the economy trades with the ROW but

More information

Part A: Answer question A1 (required), plus either question A2 or A3.

Part A: Answer question A1 (required), plus either question A2 or A3. Ph.D. Core Exam -- Macroeconomics 5 January 2015 -- 8:00 am to 3:00 pm Part A: Answer question A1 (required), plus either question A2 or A3. A1 (required): Ending Quantitative Easing Now that the U.S.

More information

"0". Doing the stuff on SVARs from the February 28 slides

0. Doing the stuff on SVARs from the February 28 slides Monetary Policy, 7/3 2018 Henrik Jensen Department of Economics University of Copenhagen "0". Doing the stuff on SVARs from the February 28 slides 1. Money in the utility function (start) a. The basic

More information

Lecture 8: Aggregate demand and supply dynamics, closed economy case.

Lecture 8: Aggregate demand and supply dynamics, closed economy case. Lecture 8: Aggregate demand and supply dynamics, closed economy case. Ragnar Nymoen Department of Economics, University of Oslo October 20, 2008 1 Ch 17, 19 and 20 in IAM Since our primary concern is to

More information

Dynamic IS-LM model with Philips Curve and International Trade

Dynamic IS-LM model with Philips Curve and International Trade Journal of Mathematics and System Science 6 (2016) 147-158 doi: 10.17265/2159-5291/2016.04.003 D DAVID PUBLISHING Dynamic IS-LM model with Philips Curve and International Trade Michiya Nozaki Gifu Keizai

More information

V. The Speed of adjustment of Endogenous Variables and Overshooting

V. The Speed of adjustment of Endogenous Variables and Overshooting V. The Speed of adjustment of Endogenous Variables and Overshooting The second section of Chapter 11 of Dornbusch (1980) draws on Dornbusch (1976) Expectations and Exchange Rate Dynamics, Journal of Political

More information

Chapter 11 The Stochastic Growth Model and Aggregate Fluctuations

Chapter 11 The Stochastic Growth Model and Aggregate Fluctuations George Alogoskoufis, Dynamic Macroeconomics, 2016 Chapter 11 The Stochastic Growth Model and Aggregate Fluctuations In previous chapters we studied the long run evolution of output and consumption, real

More information

The New Keynesian Model: Introduction

The New Keynesian Model: Introduction The New Keynesian Model: Introduction Vivaldo M. Mendes ISCTE Lisbon University Institute 13 November 2017 (Vivaldo M. Mendes) The New Keynesian Model: Introduction 13 November 2013 1 / 39 Summary 1 What

More information

Finnancial Development and Growth

Finnancial Development and Growth Finnancial Development and Growth Econometrics Prof. Menelaos Karanasos Brunel University December 4, 2012 (Institute Annual historical data for Brazil December 4, 2012 1 / 34 Finnancial Development and

More information

Suggested Solutions to Problem Set 8

Suggested Solutions to Problem Set 8 Suggested Solutions to Problem Set 8 Problem 1: a: The average unemployment rate from 1959 to 2002 is 5.9136% 5.9%. b/c: 27 out of 43 years have a strictly negative sign for the product (π t π t 1 )(u

More information

Foundations of Modern Macroeconomics Second Edition

Foundations of Modern Macroeconomics Second Edition Foundations of Modern Macroeconomics Second Edition Chapter 5: The government budget deficit Ben J. Heijdra Department of Economics & Econometrics University of Groningen 1 September 2009 Foundations of

More information

Optimal Simple And Implementable Monetary and Fiscal Rules

Optimal Simple And Implementable Monetary and Fiscal Rules Optimal Simple And Implementable Monetary and Fiscal Rules Stephanie Schmitt-Grohé Martín Uribe Duke University September 2007 1 Welfare-Based Policy Evaluation: Related Literature (ex: Rotemberg and Woodford,

More information

Oil price and macroeconomy in Russia. Abstract

Oil price and macroeconomy in Russia. Abstract Oil price and macroeconomy in Russia Katsuya Ito Fukuoka University Abstract In this note, using the VEC model we attempt to empirically investigate the effects of oil price and monetary shocks on the

More information

PROBLEM SET 1 (Solutions) (MACROECONOMICS cl. 15)

PROBLEM SET 1 (Solutions) (MACROECONOMICS cl. 15) PROBLEM SET (Solutions) (MACROECONOMICS cl. 5) Exercise Calculating GDP In an economic system there are two sectors A and B. The sector A: - produces value added or a value o 50; - pays wages or a value

More information

4 Shocks and Disturbances to the World Economy

4 Shocks and Disturbances to the World Economy 4 Shocks and Disturbances to the World Economy It is a fact of life that the world economy is subject to continual disturbances or shocks. Some disturbances are large and noticeable, such as the sudden

More information

Information Bulletin 1/2008

Information Bulletin 1/2008 Information Bulletin 1/2008 Warsaw, May 2008 Compiled from NBP materials by the Department of Statistics as at March 13, 2008. Design: Oliwka s.c. Cover photo: Corbis/Free Layout and print: NBP Printshop

More information

Choose your words wisely: Analysing RBI s monetary policy communication

Choose your words wisely: Analysing RBI s monetary policy communication Choose your words wisely: Analysing RBI s monetary policy communication Aakriti Mathur (IHEID, Geneva) Rajeswari Sengupta (IGIDR, Mumbai) Preliminary. Please do not cite. Rajeswari Sengupta and Aakriti

More information

Slides to Lecture 3 of Introductory Dynamic Macroeconomics. Linear Dynamic Models (Ch 2 of IDM)

Slides to Lecture 3 of Introductory Dynamic Macroeconomics. Linear Dynamic Models (Ch 2 of IDM) Partial recap of lecture 2 1. We used the ADL model to make precise the concept of dynamic multiplier. Slides to Lecture 3 of Introductory Dynamic Macroeconomics. Linear Dynamic Models (Ch 2 of IDM) Ragnar

More information

The Central Bank of Iceland forecasting record

The Central Bank of Iceland forecasting record Forecasting errors are inevitable. Some stem from errors in the models used for forecasting, others are due to inaccurate information on the economic variables on which the models are based measurement

More information

This is a repository copy of Estimating Quarterly GDP for the Interwar UK Economy: An Application to the Employment Function.

This is a repository copy of Estimating Quarterly GDP for the Interwar UK Economy: An Application to the Employment Function. This is a repository copy of Estimating Quarterly GDP for the Interwar UK Economy: n pplication to the Employment Function. White Rose Research Online URL for this paper: http://eprints.whiterose.ac.uk/9884/

More information

problem. max Both k (0) and h (0) are given at time 0. (a) Write down the Hamilton-Jacobi-Bellman (HJB) Equation in the dynamic programming

problem. max Both k (0) and h (0) are given at time 0. (a) Write down the Hamilton-Jacobi-Bellman (HJB) Equation in the dynamic programming 1. Endogenous Growth with Human Capital Consider the following endogenous growth model with both physical capital (k (t)) and human capital (h (t)) in continuous time. The representative household solves

More information

Multivariate forecasting with VAR models

Multivariate forecasting with VAR models Multivariate forecasting with VAR models Franz Eigner University of Vienna UK Econometric Forecasting Prof. Robert Kunst 16th June 2009 Overview Vector autoregressive model univariate forecasting multivariate

More information

NOWCASTING REPORT. Updated: August 17, 2018

NOWCASTING REPORT. Updated: August 17, 2018 NOWCASTING REPORT Updated: August 17, 2018 The New York Fed Staff Nowcast for 2018:Q3 stands at 2.4%. News from this week s data releases decreased the nowcast for 2018:Q3 by 0.2 percentage point. Negative

More information

Forward Guidance without Common Knowledge

Forward Guidance without Common Knowledge Forward Guidance without Common Knowledge George-Marios Angeletos 1 Chen Lian 2 1 MIT and NBER 2 MIT November 17, 2017 Outline 1 Introduction 2 Environment 3 GE Attenuation and Horizon Effects 4 Forward

More information

The Keynesian Model of Income Determination (revised)

The Keynesian Model of Income Determination (revised) Economics 32 Menzie D. Chinn Spring 2 Social Sciences 748 University of Wisconsin-Madison The Keynesian Model of Income Determination revised This set of notes outlines the Keynesian model of national

More information

NOWCASTING REPORT. Updated: May 5, 2017

NOWCASTING REPORT. Updated: May 5, 2017 NOWCASTING REPORT Updated: May 5, 217 The FRBNY Staff Nowcast stands at 1.8% for 217:Q2. News from this week s data releases reduced the nowcast for Q2 by percentage point. Negative surprises from the

More information

ECONOMICS TRIPOS PART I. Friday 15 June to 12. Paper 3 QUANTITATIVE METHODS IN ECONOMICS

ECONOMICS TRIPOS PART I. Friday 15 June to 12. Paper 3 QUANTITATIVE METHODS IN ECONOMICS ECONOMICS TRIPOS PART I Friday 15 June 2007 9 to 12 Paper 3 QUANTITATIVE METHODS IN ECONOMICS This exam comprises four sections. Sections A and B are on Mathematics; Sections C and D are on Statistics.

More information

Monetary Economics: Solutions Problem Set 1

Monetary Economics: Solutions Problem Set 1 Monetary Economics: Solutions Problem Set 1 December 14, 2006 Exercise 1 A Households Households maximise their intertemporal utility function by optimally choosing consumption, savings, and the mix of

More information

Has the crisis changed the monetary transmission mechanism in Albania? An application of kernel density estimation technique.

Has the crisis changed the monetary transmission mechanism in Albania? An application of kernel density estimation technique. Has the crisis changed the monetary transmission mechanism in Albania? An application of kernel density estimation technique. 6th Research Conference Central Banking under Prolonged Global Uncertainty:

More information

Strategic Interactions between Fiscal and Monetary Policies in a Monetary Union

Strategic Interactions between Fiscal and Monetary Policies in a Monetary Union Strategic Interactions between Fiscal and Monetary Policies in a Monetary Union Reinhard Neck Doris A. Behrens Preliminary Draft, not to be quoted January 2003 Corresponding Author s Address: Reinhard

More information

Test code: ME I/ME II, 2004 Syllabus for ME I. Matrix Algebra: Matrices and Vectors, Matrix Operations, Determinants,

Test code: ME I/ME II, 2004 Syllabus for ME I. Matrix Algebra: Matrices and Vectors, Matrix Operations, Determinants, Test code: ME I/ME II, 004 Syllabus for ME I Matri Algebra: Matrices and Vectors, Matri Operations, Determinants, Nonsingularity, Inversion, Cramer s rule. Calculus: Limits, Continuity, Differentiation

More information

Appendix to Chapter 9: The IS-LM/AD-AS Model: A General Framework for Macro Analysis

Appendix to Chapter 9: The IS-LM/AD-AS Model: A General Framework for Macro Analysis Appendix to Chapter 9: The IS-LM/AD-AS Model: A General Framework for Macro Analysis Yulei Luo Econ, HKU November 13, 2017 Luo, Y. (Econ, HKU) ECON2220CB: Intermediate Macro November 13, 2017 1 / 14 The

More information

Optimal Control of Nonlinear Econometric. Models with Rational Expectations

Optimal Control of Nonlinear Econometric. Models with Rational Expectations Optimal Control of Nonlinear Econometric Models with Rational Expectations V. Blueschke-Nikolaeva a a Department of Economics, Alpen-Adria-Universität Klagenfurt Universitätsstrasse 65-67, A-9020 Klagenfurt,

More information

Economics Discussion Paper Series EDP Measuring monetary policy deviations from the Taylor rule

Economics Discussion Paper Series EDP Measuring monetary policy deviations from the Taylor rule Economics Discussion Paper Series EDP-1803 Measuring monetary policy deviations from the Taylor rule João Madeira Nuno Palma February 2018 Economics School of Social Sciences The University of Manchester

More information

Combining Macroeconomic Models for Prediction

Combining Macroeconomic Models for Prediction Combining Macroeconomic Models for Prediction John Geweke University of Technology Sydney 15th Australasian Macro Workshop April 8, 2010 Outline 1 Optimal prediction pools 2 Models and data 3 Optimal pools

More information

Citation Working Paper Series, F-39:

Citation Working Paper Series, F-39: Equilibrium Indeterminacy under F Title Interest Rate Rules Author(s) NAKAGAWA, Ryuichi Citation Working Paper Series, F-39: 1-14 Issue Date 2009-06 URL http://hdl.handle.net/10112/2641 Rights Type Technical

More information

Dynamic Macroeconomic Theory Notes. David L. Kelly. Department of Economics University of Miami Box Coral Gables, FL

Dynamic Macroeconomic Theory Notes. David L. Kelly. Department of Economics University of Miami Box Coral Gables, FL Dynamic Macroeconomic Theory Notes David L. Kelly Department of Economics University of Miami Box 248126 Coral Gables, FL 33134 dkelly@miami.edu Current Version: Fall 2013/Spring 2013 I Introduction A

More information

Monetary Policy in a Macro Model

Monetary Policy in a Macro Model Monetary Policy in a Macro Model ECON 40364: Monetary Theory & Policy Eric Sims University of Notre Dame Fall 2017 1 / 67 Readings Mishkin Ch. 20 Mishkin Ch. 21 Mishkin Ch. 22 Mishkin Ch. 23, pg. 553-569

More information

Lecture on State Dependent Government Spending Multipliers

Lecture on State Dependent Government Spending Multipliers Lecture on State Dependent Government Spending Multipliers Valerie A. Ramey University of California, San Diego and NBER February 25, 2014 Does the Multiplier Depend on the State of Economy? Evidence suggests

More information

INFLATION AND UNEMPLOYMENT: THE PHILLIPS CURVE. Dongpeng Liu Department of Economics Nanjing University

INFLATION AND UNEMPLOYMENT: THE PHILLIPS CURVE. Dongpeng Liu Department of Economics Nanjing University INFLATION AND UNEMPLOYMENT: THE PHILLIPS CURVE Dongpeng Liu Department of Economics Nanjing University ROADMAP INCOME EXPENDITURE LIQUIDITY PREFERENCE IS CURVE LM CURVE SHORT-RUN IS-LM MODEL AGGREGATE

More information

Expectations, Learning and Macroeconomic Policy

Expectations, Learning and Macroeconomic Policy Expectations, Learning and Macroeconomic Policy George W. Evans (Univ. of Oregon and Univ. of St. Andrews) Lecture 4 Liquidity traps, learning and stagnation Evans, Guse & Honkapohja (EER, 2008), Evans

More information

Introductory Dynamic Macroeconomics

Introductory Dynamic Macroeconomics ii Introductory Dynamic Macroeconomics Ragnar Nymoen 10 January 2005 iv CONTENTS 2.5.1 APhillipscurvemodel... 60 2.5.2 An error correction model that integrates the main-course.. 64 A Variables and relationships

More information

The Dornbusch overshooting model

The Dornbusch overshooting model 4330 Lecture 8 Ragnar Nymoen 12 March 2012 References I Lecture 7: Portfolio model of the FEX market extended by money. Important concepts: monetary policy regimes degree of sterilization Monetary model

More information

Economics 232c Spring 2003 International Macroeconomics. Problem Set 3. May 15, 2003

Economics 232c Spring 2003 International Macroeconomics. Problem Set 3. May 15, 2003 Economics 232c Spring 2003 International Macroeconomics Problem Set 3 May 15, 2003 Due: Thu, June 5, 2003 Instructor: Marc-Andreas Muendler E-mail: muendler@ucsd.edu 1 Trending Fundamentals in a Target

More information

Simple New Keynesian Model without Capital

Simple New Keynesian Model without Capital Simple New Keynesian Model without Capital Lawrence J. Christiano January 5, 2018 Objective Review the foundations of the basic New Keynesian model without capital. Clarify the role of money supply/demand.

More information

Formelsammlung zu Wirtschaftstheorie IV

Formelsammlung zu Wirtschaftstheorie IV Keynes and the Classics Notes on the Monetary Theory of Production Formelsammlung zu Wirtschaftstheorie IV Social production, value and distribution (436-445) The starting point is a Leontief price system:

More information

Nowcasting Norwegian GDP

Nowcasting Norwegian GDP Nowcasting Norwegian GDP Knut Are Aastveit and Tørres Trovik May 13, 2007 Introduction Motivation The last decades of advances in information technology has made it possible to access a huge amount of

More information

Modelling Czech and Slovak labour markets: A DSGE model with labour frictions

Modelling Czech and Slovak labour markets: A DSGE model with labour frictions Modelling Czech and Slovak labour markets: A DSGE model with labour frictions Daniel Němec Faculty of Economics and Administrations Masaryk University Brno, Czech Republic nemecd@econ.muni.cz ESF MU (Brno)

More information

Monetary Policy and Unemployment: A New Keynesian Perspective

Monetary Policy and Unemployment: A New Keynesian Perspective Monetary Policy and Unemployment: A New Keynesian Perspective Jordi Galí CREI, UPF and Barcelona GSE April 215 Jordi Galí (CREI, UPF and Barcelona GSE) Monetary Policy and Unemployment April 215 1 / 16

More information

Indeterminacy and Sunspots in Macroeconomics

Indeterminacy and Sunspots in Macroeconomics Indeterminacy and Sunspots in Macroeconomics Friday September 8 th : Lecture 10 Gerzensee, September 2017 Roger E. A. Farmer Warwick University and NIESR Topics for Lecture 10 Tying together the pieces

More information

Growth and Income Distribution: Neo-Kaleckian Models For Closed

Growth and Income Distribution: Neo-Kaleckian Models For Closed Growth and Income Distribution: Neo-Kaleckian Models For Closed and Open Economies Professor Robert A. Blecker Department of Economics American University Washington, DC 20016 USA blecker@american.edu

More information

Simple New Keynesian Model without Capital

Simple New Keynesian Model without Capital Simple New Keynesian Model without Capital Lawrence J. Christiano March, 28 Objective Review the foundations of the basic New Keynesian model without capital. Clarify the role of money supply/demand. Derive

More information

Monetary Policy and the Uncovered Interest Rate Parity Puzzle. David K. Backus, Chris Telmer and Stanley E. Zin

Monetary Policy and the Uncovered Interest Rate Parity Puzzle. David K. Backus, Chris Telmer and Stanley E. Zin Monetary Policy and the Uncovered Interest Rate Parity Puzzle David K. Backus, Chris Telmer and Stanley E. Zin UIP Puzzle Standard regression: s t+1 s t = α + β(i t i t) + residuals Estimates of β are

More information

ECON2285: Mathematical Economics

ECON2285: Mathematical Economics ECON2285: Mathematical Economics Yulei Luo FBE, HKU September 2, 2018 Luo, Y. (FBE, HKU) ME September 2, 2018 1 / 35 Course Outline Economics: The study of the choices people (consumers, firm managers,

More information

NOWCASTING REPORT. Updated: September 7, 2018

NOWCASTING REPORT. Updated: September 7, 2018 NOWCASTING REPORT Updated: September 7, 2018 The New York Fed Staff Nowcast stands at 2.2% for 2018:Q3 and 2.8% for 2018:Q4. News from this week s data releases increased the nowcast for 2018:Q3 by 0.2

More information

Tutorial 2: Comparative Statics

Tutorial 2: Comparative Statics Tutorial 2: Comparative Statics ECO42F 20 Derivatives and Rules of Differentiation For each of the functions below: (a) Find the difference quotient. (b) Find the derivative dx. (c) Find f (4) and f (3)..

More information

6. Open Economy Models

6. Open Economy Models 6. Open Economy Models Tutorial 45 1) Consider an open-economy model (with government purchases and income tax assumed to be exogenous) and fixed exchange rates; Y = C + I + G + (E M) C =α+β(1 t)y M =

More information

Queen s University Department of Economics Instructor: Kevin Andrew

Queen s University Department of Economics Instructor: Kevin Andrew Queen s University Department of Economics Instructor: Kevin Andrew Econ 320: Assignment 4 Section A (100%): Long Answer Due: April 2nd 2014 3pm All questions of Equal Value 1. Consider the following version

More information

ECON 5118 Macroeconomic Theory

ECON 5118 Macroeconomic Theory ECON 5118 Macroeconomic Theory Winter 013 Test 1 February 1, 013 Answer ALL Questions Time Allowed: 1 hour 0 min Attention: Please write your answers on the answer book provided Use the right-side pages

More information