Questions tagged [macroeconomics]

Macroeconomics is a branch of economics dealing with the aggregate economy as a whole, rather than individual markets.

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Stabilizing Property of a Taylor Rule

Considering the New Keynesian Model we have the Phillips curve and dynamic IS curve in log-linearized form with price shock $u^{\pi}$ and demand shock $u^{IS}$ :$$\pi_t=\beta E_t\pi_{t+1}+\kappa(y_t-...
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What are the calculations that policy makers do when deciding to ease a lockdown?

I have heard this question framed as making the decision between lives and the economy. But on the other hand, I also read a StackExchange discussion(I am not sure of the link), where it was shown ...
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Does combination of the paradox of thrift and the acceleration principle reduce economy to c=a level of consumption during recession?

By "c=a level" I mean situation when all consumption by households equals to autonomous spending, more or less. I assume no counter-cyclical policies(including automatic stabilizers). I also assume ...
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2answers
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How can we get negative **real** interest rate?

According to Fisher's equation, Real interest rate=Nominal interest rate - expected inflation rate So, how can we get negative real interest rate? I'm in doubts. On one hand, purely from algebraic ...
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Keynesian cross. Can there be a situation when the point of equilibirum “runs away”, shifts in response to attempts to reach it?

In Keynesian cross model, as far as I understand, income-expenditure equilibirum is reached this way: when unplanned inventory investment>0, then firms produce less, when unplanned inventory ...
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“If markets are competitive, the rate of return on capital equals its marginal product, $f'(k)$ minus depreciation $\delta$”?

Consider Solow model with $Y=(AL)^{1-a}K^a$. Then output per effective labor is $y=k^a$ where $k=\frac{K}{AL}$. "If markets are competitive, the rate of return on capital equals its marginal product,...
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1answer
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Positive productivity shock with a fall in output

I am modeling a two-country world. Within each country there exists a representative infinitely-lived agent, a representative final good producer, a continuum of domestic monopolistic competitive ...
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What is the best measure for the world's economic cycle?

I'm trying to make a graph that shows how the return of major assets (S&P 500 index, % of 3Y T-notes, oil, gold, etc) move along with the world's expansion& recession cycle. I looked into ...
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1answer
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Multiplier effect and GDP

The fundamental national income accounting identity is: $Y = C + I + G + X - M$. The multiplier effect tells us that an autonomous injection into the economy will result in a multiplied increase in ...
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What is the relevance of economic growth?

Economic policies often mention high economic growth as a desirable path. For example, "We started to lay a new foundation for stronger, more durable economic growth." -- President Obama, ...
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1answer
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Why will inflation raise sellers' purchasing power?

According to my textbook, in the chapter on inflation, "When a price rises, buyers of that good must pay more, but sellers get more revenue when they sell it. The loss in buyers' purchasing power is ...
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In Solow growth model, increasing consumption drops production which should measure GDP?

Consider Solow growth model $Y=F(K,AL)$ where $A$ measures knowledge progress, $K$ is capital and $L$ is label. I have suppressed temporal dependence. I am going to assume $L$, $A$ grow exponentially ...
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What is the meaning of M2/Base (Monetary base) in money supply?

I plotted the change of M2, Base supplies ($MM) obtained from the below websites: https://fred.stlouisfed.org/series/M2 and https://fred.stlouisfed.org/series/base I interpreted the M2/base ratio as ...
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2answers
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is it possible to find PPP monthly data?

For most of the databases, monthly PPP data is not provided. How it can be possible to find monthly PPP data? i mean PPP(exchange rate) conversion factors. Thanks
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Calculating Real Budget Deficit, given Nominal Deficit and Inflation

I am doing this course on Coursera. In the context of explaining what Budget Deficits are, the professor puts up the following formula: Real Deficit = Nominal Deficit - (Inflation*Total Debt) My ...
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1answer
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Gali (2015) Chapter 8 Symmetric Steady State

In Chapter 8 (small open economy) of Gali's 2015 version of Monetary Policy, Inflation, and the Business Cycle, he often performs log linearisations around a symmetric steady state like below: My ...
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1answer
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Why people respond to surveys like that of Purchasing Managers' Index?

A lot of data, including indexes, rely on surveys. For example, Purchasing Managers' Index. (1) Why people answer these surveys (is there any benefit)? (2) How to make sure the data is correct? What ...
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1answer
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What strategies can the president employ to deflate the dollar

United States president Donald Trump has publicly declared a desire to deflate the value of the dollar. I have read in news reports that he has asked aids to find ways to decrease the dollar's ...
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1answer
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Why does the answer not include increased negative unplanned stock investment?

I will focus on the event "c": The answer for "c" is following: A sharp increase in the rate of real GDP growth leads to a higher level of planned investment spending by producers, according to ...
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1answer
52 views

What does it mean if a economic model is internally consistent?

What does it mean if a economic model is internally consistent? What happens if it is not? Is it not closed anymore? Can it still be solved? Does it still have an equilibrium?
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Are heterogenous expectations models still determinate, closed models?

Cars Hommes proposed many models based on agents having heterogeneous expectations. Agents switch between a fixed set of prediction rules depending on their forecast error history. However, it seems ...
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What Level of Government Debt to GDP Ratio is Sustainable?

I was reading that Japan has a debt to gdp ratio of 240pc and I cannot understand why this has not left the country "bankrupt"? From looking at this like an ordinary person this level would be ...
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In a rational expectation framework, do all agents know the true law of motion of the economy?

Expectations are model consistent, on average, in a RE framework, so errors are made, but on average they are zero. thus In a rational expectation framework, do all agents know the true law of ...
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1answer
37 views

What would be the “text-book” result of governement taking on massive debt immediately before a significant recession [closed]

Supposing, (entirely hypothetically, of course ;) ), that the UK government had taken on massive future debts (by spontaneously giving 2-3% of GDP to its citizens, in GBP, say.) immediately before a ...
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Does the law of motion remain constant in a rational expectation model? Does it constantly change in a boundedly rational agent framework?

Is the following true? The rational expectations hypothesis also implicitly assumes that the law of motion of the economy does not change, which actually is a self-fulfilling assumption as long as ...
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1answer
72 views

How does interest rate impact exchange rate?

When I’m using the forward exchange rate formula based on non-arbitrage theory, it tells me that a positive interest rate spread (i_domestic > i_foreign)would cause the forward exchange rate(units of ...
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1answer
51 views

How does the GDP multiplier work?

When we learn about the GDP multiplier, it is portrayed as 1/MPS, because savings are supposedly a leak out of consumer spending. However, what I don't understand is aren't those savings spent anyways ...
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1answer
71 views

Basic question on S=I

Consider the identity: $$ Y=C+I+G+X-M $$ where $Y$ is defined either as value-added output, or income, or total expenditure. Now, consider private individuals, who decide to save money, as opposed to ...
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Does the federal reserve create any type of deadweight/welfare loss?

In microeconomics, we learn that when a good is overproduced or under produced, there is a dead weight loss associated with it. It seems like the same concept would apply to macroeconomics, where the ...
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1answer
34 views

Why does a model that is used for policy analysis needs its shocks and parameters to be structural (= invariant) to the shock under consideration?

In their paper, " New Keynesian Models: Not Yet Useful for Policy Analysis" V. V. Chari, Patrick J. Kehoe, and Ellen R. McGrattan argue that one needs a structural model in order to analyse the ...
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1answer
57 views

What is the relationship between population growth and economic growth?

Population Growth is only one of several factors of influence on economic growth but it is not strictly necessary for the economy to grow. I have also heard of the term called the population bonus - ...
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Are overlapping generation (OLG) models extensions of a DSGE model?

Are overlapping generation models (OLG) extensions of a dynamic stochastic general equilibrium (DSGE) model? Or aren't these DSGE per se?
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1answer
65 views

Macroeconomics two period model

This is the problem I've been given. Assume the consumers’preference over current and future consumption is given by $U(c,c')=c^\frac{1}{2}*c'^\frac{1}{2}$. Further assume there is no government. 1) ...
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Does demand side economics only apply to manufacturing

For example, if investment falls then manufacturing falls. but there is no investment in secondary markets. Wouldn't recessions cause factories to collapse but why would they affect realtors, used ...
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1answer
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Research question formation

I am in the process of starting a research paper (for those in the IB Board, this is the Extended Essay) and I had previously formed my research question like this: To what extent will factor x ...
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Reference for Jacob Viner research on colonies

In this video at 6.02 Milton Friedman mentions some 'famous studies' on colonies from Jacob Viner. Does someone know exactly which studies these are?
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Oil prices forecast methods

Oil prices have a significant impact on the world economy, positive for exporters and negative for importers to oversimplify a bit. They are also known to be highly volatile, and depend on hard to ...
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1answer
25 views

Choice of measure for unemployment

There are six types of unemployment rates in the US (U1-U6). U6 provides the broadest measure of unemployment, taking into account not only the unemployed labour market participants who are actively ...
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Why Does Deficit Spending Work Without a Liquidity Trap?

My understanding is that in a functioning economy, the financial market clears when the nominal interest rate is above zero. It is only when it reaches zero that a liquidity trap occurs and the ...
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39 views

Why does real wage equal MPL * L

My macroeconomics book(Mankiw 7th ed.) states the following: Economic Profit = Y − (MPL × L) − (MPK × K ). It also states that the (economic) profit of a firm equals the output minus the total real ...
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1answer
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Why does the aggregate consumer spending decrease due to to lower expected future disposable income instead of MPC?

This illustration is from Krugman's macroeconomics textbook, it's supposed to illustrate following situation (assuming that it happened for many people): Conversely, suppose you have a good job but ...
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How can the Fed realistically address the issue of frontrunning (in the context of its ETF purchases)

In the first two days in which the Fed's corporate bond program started buying ETFs, purchases totaled around USD305m. The size of the program is much larger, and it would seem very reasonable to ...
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Regarding the role of the Fed in controlling interest rates

When it is said that the Fed cut interest rates, does this refer to the discount rate, fed fund rate or both?
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Is the steady state of k enough to show Y grows at the rate n+g?

To provide some context for the question: I was approached by a student needing help for a an empirical thesis based on Solow-Swan model. She had trouble solving the theoretical model she wanted to ...
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Impacts of Suspending Mortgage and Rent Payments

Recently, there has been some support for suspending rent and mortgage payments, the goal being to provide financial relief during the Covid-19 response. I'm wondering what the impacts for the ...
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2answers
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What is the difference between identification, calibration and estimation?

In fitting theoretical models to data, what is the difference between identification, calibration and estimation?
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Is there unnecessary duplication for borrowing in this circular flow of income diagram?

Here is a circular flow of income that I took from Krugman's macroenomics textbook. We can see that when firms want to borrow they can go to the financial sector and borrow savings of national and ...
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Successes and limitations of New Keynesian DSGE models?

What are some good review papers that discuss the successes and limitations of current state of the art (New Keynesian) DSGE models assuming rational expectations? Probably some of these reviews can ...
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193 views

Balanced budget and change in taxes

Consider a simple Keynesian economy in which the government expenditure ($G$) exactly equals its total tax revenue: $G = tY$ where $t$ is the tax rate and $Y$ is the national income. Suppose that the ...

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