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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Small Open Economy Without Government

Suppose we have an economy with a representative consumer with the following utility function: $$U=\sum_{t=0}^\infty\beta^t\frac{c_t^{1-\sigma}}{1-\sigma} $$ There is no uncertainty and the household ...
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1answer
49 views

The impact of a devaluation of the national currency under a fixed exchange rate system

I would really be thankful if any of you could check my answer to the following question. Question: Describe, using the IS-LM-BP model, the impact of a devaluation of the national currency under a ...
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1answer
29 views

From the aggregate supply equation to the definition of inflation rate

By definition the inflation rate is $$\pi=\dfrac{P-P_{-1}}{P_{-1}}\cdot100\%$$ or could be defined in terms of the consumer price index CPI, but in this case I think the former is the one to consider....
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1answer
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Annual Data and Heteroscedasticity (Engle's ARCH test)

GARCH models are often applied to financial time series (daily, weekly or monthly stock returns). What about lower frequency such as quarterly and annual time series? This could include macroeconomic ...
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1answer
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Update of Fed mandate(2020) - "shortfalls of employment"

In this Fed link, it's stated that 1 of the most important changes in the document describing the Fed mandate/framework, is On maximum employment, the FOMC emphasized that maximum employment is a ...
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1answer
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Can a subset of variables in a lower triangular Cholesky identification scheme be ordered arbitrarily if we do not care about their shocks?

For example, in a three-variable SVAR model in Favero, C. A. (2001), the author uses Cholesky decomposition to identify only money shocks by ordering it last. Thus, both $p_t$ and $y_t$ affect $m_t$ ...
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1answer
63 views

What is causing the difference between USA financial indexes and perceived economy?

While the world is facing economic problems since the spread of Covid-19 in Feb 2020, the main indexes in the world (S&P500 and NASDAQ100) reached and exceeded twice their maximum levels. I ...
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59 views

Is Reinhart and Rogoff mistake also present in similar 'minded' studies?

In Reinhart and Rogoff (2010), the authors purported to have found empirical evidence that going over the 90% of public debt threshold was harmful for the country. However, in 2013 (I think), after ...
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1answer
142 views

what is the Intuition behind Cholesky identification in VAR/SVAR

In my understanding of Cholesky identification, $RF$ in the model below should be ordered last since it is contemporaneously affected by all variables in the model. So why does Leeper EM, Sims CA, Zha ...
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26 views

How to understand: interest income is a moving average of past interest rates

I encounter this question in the paper by DRECHSLER et al. (2021) (Banking on deposit). How to understand that "interest income is close to a moving average of past interest rates, consistent ...
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Can't find the right value function

This is a problem I cannot solve because I don't see why the athlete doesn't choose the time allocation all at once... Problem: You are a professional athlete preparing a triathlon. For each sport, ...
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FX - Reconciling monetary policy and interest rate parity

Theory suggests that as rates rise domestically, the home currency (call it currency A) will appreciate against currency B (all else equal). What we see with currency forward rates though seems to be ...
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Inflation in Equilibrium

Suppose we have the following market-clearing condition for the goods market within a New-Keynesian setting: $$ c_t = (1-\alpha)(1-\frac{\phi}{2}\pi_t^2)y_t + \alpha (1-\frac{\phi}{2}\pi_{t-1}^2)y_{t-...
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If I fill a vending machine with \$0.50 sodas and sell them for \$1, am I creating 50 cents of wealth for the economy?

This is a very simplified example. If I fill a vending machine with sodas that cost \$0.50 each and someone comes along and pays \$1 for it, am I creating an extra \$0.50 of wealth for the economy? ...
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1answer
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Stochastic AK model derivation

Consider the following version of the stochastic Ak model written as a Bellman equation: $$v(A,k)=max\ log(c)+\beta E[v(A',k')|A]$$ $$s.t\ k'+c\leq Ak$$ and non-negatitvities. $A$ is a stationary ...
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Stochastic AK model with uncertainty [duplicate]

Consider the following version of the Ak model:$$V^*(A_0,K_0)=max\sum\beta^t\sum P(A^t)\frac{c_t(A^t)^{1-\sigma}}{1-\sigma}$$ st$$ k_{t+1}(A^t)+c_t(A^t)\leq Ak_t(A^{t+1})$$ and non-negativities $A_t$ ...
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1answer
59 views

Identical aggregation

Assume the following: all firms are identical, i.e. at each time period $t$, $\forall i$, $j: F_{t}^j = F_{t}^i = F_t$ and the technology is CRS. All consumers have the same endowment of capital $\...
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1answer
87 views

Why do most function images take the form of a curve? [closed]

I always see curves (such as in dark blue below) and not any other type of (function) image. May I get a reason for why it is always like that? This figure is only for representation.
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Problem to find steady state when I assume Y=1

I am trying to do a DSGE model in Matlab, I have all the steady state equations on paper and pencil but I fail to find values for all variables. Indeed, since I have constant return to scale, I have ...
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Forecast from DSGE

My basic understanding of a DSGE is that it comuptes the equilibrium values for GDP, inflation, etc and then shows you how these would respond to different hypothetical exogeneous shocks. How do you ...
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Variable for future income or future disposable income

I am doing a project in macroeconomics. I need future disposable income data for the analysis which I couldn't find. Is there a variable/formula which captures future disposable income?
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1answer
76 views

Values of A,K,N,a in Cobb-Douglas function expressing GDP

In many basic macroeconomics textbooks a Cobb-Douglas production function with constant returns to scale is used to express the output of the economy as a function of labor and capital: $Y=AK^aN^{1-a}$...
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2answers
65 views

Why do yield spikes reflect badly on tech stocks

Yield spikes are a reflection of market equity valuation. How I interpret this is that there’s real fear that some companies in the market won’t be able to pay their debt. Therefore, bonds trade cheap,...
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1answer
159 views

Did William Nordhaus exclude 87% of economic industries from his climate change analysis?

Economist Steve Keen published in article in 2020 titled, The appallingly bad neoclassical economics of climate change. In it, he alleges that climate economists such as William Nordhaus and Richard ...
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Derive optimal wage in New Keynesian-Calvo wage stickiness

Following Costa, 2016 in page 96, developing the labor variety optimal wage decided by the household, the FOC is: $$0=E_t\sum_{i=0}^\infty(\beta\theta_w)^{t+i}\left\{\psi_W\left[L_{t+i}\left(\frac{W_{...
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45 views

Finding simple multiplier using G,Y,P,W

Let us say the estimated equation for the economy’s aggregate demand is Y = 400 – 15P + 8G And the estimated equation for the economy’s aggregate supply is Y = 5 + 11P – 10W where Y is the country’s ...
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Proof monotonicity on Blackwell sufficient conditions

I need to prove monotonicity assumption on Blackwell’s sufficient conditions for a contraction, that is: Given the operator T defined as $(Tf)(x) = sup [F(x,y)+bf(y)]$ I need to show that $f\leq g\...
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1answer
86 views

When do workers versus capital owners share of income increase?

The share of total income obtained by workers rather than capital owners is for obvious reasons of interest. Assuming that the economy can be desribed by an aggregate production function $$Y = F(K,L)$$...
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1answer
86 views

IS curve, interest rate and consumption

It is possible for the interest rate to affect the expenditure with consumption. An increase in the interest rate could, in principle, lead to increases in savings and, that way, to a decrease in ...
7
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1answer
93 views

How to get this Production Function in Growth Rates

I'm struggling to understand how Khan & Reinhart (1990) go from the next production function. $$y=A f(K,L,Z)$$ Where $y$ is the production of the economy, $A$ is a variable which contains the ...
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25 views

Is there a source which informs the public of who is buying up newly issued U.S. Government debt?

Is there a list somewhere of who is buying the newly issued debt that will finance the American Rescue Plan (the $1.8 trillion stimulus package signed recently)? Of course, I have an idea of who owns ...
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diverging price indicators

Suppose that PPI is increasing while CPI is decreasing. interpereting this is somewhat tricky because different contexts are at play: CPI is largely domestic driven while PPI has global determinants. ...
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1answer
1k views

Why Are Cargo Ships Backed Up If The US Economy Is Struggling Due To The Pandemic?

Since the start of the present pandemic, the US Congress has authorized over \$5 trillion in various forms of economic aid (Business Insider), including the just-signed $1.9 trillion American Rescue ...
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Solving complex RBC/DSGE models

Why is it important for policymakers (central bankers, the treasury department, the finance ministry etc.) to be able to solve complex dsge/rbc models as quickly and as efficiently as possible? I am a ...
2
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1answer
94 views

Why is saved money sitting on a bank account bad for the economy?

I've seen several news that were concerned about effect of the unspend savings that just sits on a bank account to the global economy. Given that bank uses to money invest in things, or simply lend ...
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56 views

Stochastic Ak model

$$V^*(A_0,K_0)=max\sum\beta\sum P(A^t)\frac{c_t(A^t)^{1-\sigma}}{1-\sigma}$$ st$$ k_{t+1}(A^t)+c_t(A^t)\leq Ak_t(A^{t+1})$$ $$A_t=1+u_t$$ $$u_t=\rho u_{t-1}+e_t$$ $$c_t(A^t),k_t{t+1}(A^t)\geq 0 \...
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Additive or multiplicative decomposing?

I am going to decompose one of my time series. My goal is to get rid of the seasonal component. It looks like this: The last picture is: log(next value/present value) I have understood that if the ...
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17 views

Equities-dollar correlation

Equities-dollar correlation was mostly positive in the 2000s and switched to negative since the GFC. Are there any structural drivers explaining this change in correlation?
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22 views

Denominator for the Labor Force Participation By group

I want to check that I am using the correct definition for labor force participation rates by gender or income group. For instance, if we have the following: 1- Working age population of 800 people, ...
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0answers
30 views

Do you know how to compute the IRF of a GARCH (1,1)

We have the following model (GARCH (1,1) ) $y_t=\sigma_t\epsilon_t$ $\sigma_t^2 = \omega + \beta*\sigma_{t-1}^2 + \gamma*y_{t-1}^2$ Note that we can rewrite the latter as: $\sigma_t^2=\frac{\omega}{1-\...
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1answer
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How does one country peg its currency to another's? [closed]

For example, Belize has pegged its currency to the US dollar at an exchange rate of 2 Belize dollars to 1 US dollar. How does Belize do that?
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2answers
100 views

No arbitrage arguments on production machine in a neoclassical model

I am reading a paper (Manuelli & Seshadri 2014) that use a neoclassical model to model technology diffusion. I cannot understand the arbitrage condition that are used to calculate the rent price ...
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2answers
143 views

Competitive equilibrium with IRTS

Suppose we have a static economy with one firm and one consumer. Consumer owns the firm and decides on how much to consume and to work: $$\max U(c,1-n_s)\ \text{s.t.} \ pc\leq wn_s+\pi$$ The firm is ...
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1answer
64 views

Is there a book or notes that explain all about inflation? [closed]

Is there a book or notes or papers (but for easy understanding please) that explain all about inflation? Not at a research level but student level. From what is previously needed to define and ...
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1answer
213 views

M2-M1: what's left in the delta?

If you subtract M2SL - M1SL, the chart looks as follows: The change is due to re-classification: M1 before: (3) other checkable deposits (OCDs), consisting of negotiable order of withdrawal, or NOW, ...
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1answer
129 views

Calculate average annual inflation

The price index in the year 1993 is 60. The base at 2012 is 100. The annual nominal interest rate between 1993 and 2012 is 66% on average. What is the average annual inflation between 1993 and 2012? I ...
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1answer
69 views

How can the Fed enforce exit criteria if they begin yield curve control?

Over the past year, the notion yield curve control has resurfaced and appeared on FOMC minutes, decades after its last implementation. According to the Fed's introduction page: As the U.S. continued ...
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1answer
50 views

Seemingly contradictory relationship between bond yields and economic growth?

I have a few seemingly contradictory ways of viewing the relationship between economic growth and bond yields: Reductions in FFR are largely induced by IOER. Since IOER and bonds are competing ...
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0answers
25 views

Is it feasible for another country to attack the US dollar via counterfeiting? [duplicate]

Assuming, for the sake of the question, that a well-resourced adversary (another country, most likely) had the means and motive to conduct economic warfare against the United States through large-...
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0answers
37 views

Remove seasonality in R

I have data of total exports of fish from my country in the time period 2010-2020. Since our currency (NOK) has gotten weaker to the currencies we are trading with, we have gotten a lot more value ...

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