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The main challenge in macroeconometrics as opposed to microeconometrics is a the small sample size, because of short recorded time-series and less than 200 countries providing data. To get around this problem increasingly the more popular approach is Bayesian estimation, which often relies Monte Carlo Markov Chains to construct the posterior distribution of ...


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Here is my suggestion: I would say the optimal level of consumption is $\frac{m}{p_1}$ if $p_1 < p_2$ and $\frac{m}{p_2}$ if $p_2 < p_1$. So the individual consumes only whichever good is cheaper. Since utility is just the maximum of whichever two amounts you could consume, you would maximize that by consuming the highest amount possible. Good 1 is a ...


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The question wording is somewhat vague, so I am interpreting it as follows: assuming an entity wants to borrow at some fixed interest rate, is it more likely to be able to do so in a recession or in a high inflation period? The following factors matter. The willingness of lenders to lend depends up on the state of the cycle. As noted by Henry in a comment, ...


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Here; $M^d(Y,i)$ is the demand for money. $M_0$ is the ‘autonomous’ demand for money, i.e. demand for money that would not depend on income or interest rate. $M_1$ is the effect that real income/output has on demand for money. It will be positive because ceteris paribus when there is more goods and services around people demand more money for carrying out ...


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Yes. What you say is correct: if US bonds have a higher yield then investors will choose to invest in US bonds, but then when Germany or Japan or any other country needs to issue debt, they will have to set a higher rate to attract investors to buy their bonds. Of course, we are talking about changes in the interest rate, not in the level of the interest ...


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Is that derivation for $k(t+1)$ correct? Technically, you never reach the steady state, but only asimptotically as $t\rightarrow\infty$, but at infinity the $A(t)$ will also be infinite because it grows exponentially with time. I suspect that $k(t+1)$ should depend on $(1+g)$ instead of $A(t)$. Usually these models are expressed in units of effective labor, ...


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So, the IS curve is a set of equilibria: all combinations of income and interest rate that achieve macroeconomic equilibrium are represented by the IS curve. After all, that's why they call it IS: Investment = Savings!!! Hence, let's take off from here: Investment = Savings = Public Sector Savings + Private Sector Savings What's Public savings? Remember: ...


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This question is full of misconceptions, I think those have to be corrected first. Correcting Misconceptions: Unlike a normal company, the government can't simply go to the bank and ask to borrow existing money from the bank, rather (it is my understanding) that the government goes to the treasury and asks for more money to be printed so that the ...


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For example, the response of $y_t$ to a shock in $x_t$ should be expected to be different at monthly, quarterly and annual frequencies, right? Generally (and usually), yes. Or it is that the results should be similar irrespective of the frequency of the data? Generally (and usually), no. The answer to your question depends on the underlying data ...


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What you have there are the preferences under an arbitrary policy -- what some call the prevalue function. The only thing missing is the max operator. Written with maximization (and making the state and choice explicit), the Bellman equation is \begin{align} U(K_t, \epsilon_t) =& \max_{C_t} \{ (1-\beta) C_t^{1 - \frac{1}{\eta}} + \beta [E_t(U(K_{t+1}, \...


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This result is presented on page 14 of Foundations of Modern Macroeconomics. The key is to total differentiate both expressions. Start with the supply of labor: \begin{gather} W/P^e = g(N^S) \\ d(W/P^e) = d\Big( g(N^S) \Big) \\ \frac{1}{P^e} dW - \frac{W}{(P^e)^2}dP^e = g_NdN^S \\ dN^S = \frac{1}{g_N}\frac{dW}{P^e} - \frac{1}{g_N}\frac{W}{P^e}\frac{dP^e}{P^e}...


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In the UN System of National Accounts (SNA 2008), $$ \begin{aligned} \text{GDP} &= \text{Total Value-Added}, \\ \text{Output} &= \text{Total Production}. \end{aligned} $$ Since $\text{Value-Added} = \text{Production} - \text{Intermediate Consumption (IC)}$, we have $$\text{GDP} = \text{Output} - \text{Total IC}.$$ (IC refers to goods ...


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So graphically this is pretty straight forward, as you may have already understood: Since the LM curve has a positive slope the entire shift of IS curve ($\frac{\partial Y}{\partial G})$ is not fully translated into final output. It would happen when LM curve is flat (which is usually the case at very low interest rates in liquidity trap situation). ...


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For free-floating sovereign borrowers (e.g., Japan, Canada, UK, and the euro as a bloc (the member countries are pegged versus each other), short-term bond yields are largely determined by the expected path of the policy rate (plus a small term premium). For longer-term bonds, one can debate how value is determined, but forward rates are generally smooth, so ...


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It follows from Assumption 4.10. Let $\lambda y \in \Gamma(\lambda x)$ be the solution. Let $\delta = \frac{1}{\lambda}$. By Assumption 4.10, $$ \lambda y \in\Gamma(\lambda x) $$ implies $$ \delta \lambda y \in \Gamma(\delta\lambda x) $$ in other words $$ y \in \Gamma(x) $$


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So we have $$S^A = I^A + NX^A $$ $$S^B = I^B + NX^B $$ where $S^A$ and $S^B$ are exogenous constants. And since there are only two countries we have $$NX^A = -NX^B $$ which leads to $$S^A - I^A = -( S^B - I^B ) $$ Use that last equation to solve for r (after plugging in the I formulas). Then solve the first equation and require that $NX^A$ be positive.


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Federal Reserve Economic Data (FRED) system may have some of the data you are seeking. For example the links below may be helpful directly or indirectly to inform your further search efforts. FRED recent release calendar: https://fred.stlouisfed.org/releases/calendar FRED web services release dates: https://fred.stlouisfed.org/docs/api/fred/releases_dates....


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The most straightforward way is to examine the coefficients of your VAR model, since the persistence is broadly understood in econometrics as a system dependence on its own past (see Verbeek (2008): a guide to modern econometrics). A simple VAR model is given: $${\displaystyle y_{1,t}=c_{1}+a_{1,1}y_{1,t-1}+a_{1,2}y_{2,t-1}+e_{1,t}\,} \\ {\displaystyle y_{2,...


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The quote is extremely ambiguous, and answer will depend on exactly how you interpret the 'well-run government', whether author assumed everything else stays constant, and what is meant by prices. First, from macroeconomic theory we know that ceteris paribus when aggregate supply expands ($LRS_1$ moves to right to $LRS_2$), aggregate prices will decrease, as ...


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Is there any economic theory that would support that claim? As far as I'm aware - no. In science of economics it's considered that predictable mild inflation is better than deflation (i.e. prices going down), as deflation causes higher unemployment and risks to spiral into self-systaining cycle which can be problematic to break. Also, inflation allows ...


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This link to a 43 page paper: Ricardian equivalence: an empirical application to the Portuguese economy CarlosFonseca Marinheiro https://core.ac.uk/download/pdf/6978949.pdf Introduction on page 3: The fiscal policy may be used with a stabilising role if the government finance decisions are able to influence private consumption (i.e., aggregate demand) and ...


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Let $\pi$ be the fine that needs to be paid besides the parking fee (say, $\phi$) if he gets caught. Further, he may or may not get caught for not paying. So let $p$ be the probability perceived by John about whether he will be caught. Let $u(x)$ be utility function of paying for amount $x$, with $u(0)=0$, $u'(x)<0$. If he pays the parking fee $\phi$ he ...


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Recently, Bronwyn Hall published an NBER working paper that seems to be exactly what you need. https://www.nber.org/papers/w27203


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The money market rate is the interest rate at money market which is market where highly liquid assets are traded (see more about this at Investopedia). It is called money market because in economics very liquid assets can also be considered to be 'broad money.' The rate at money market rate and central bank policy rate will be similar because the policy rate ...


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There are several aspects to this question: General aspects: What determines a stylized fact? Are stylized facts country-specific? Why do economic studies often use the United States as a benchmark? Specific aspects: What do we know about the macroeconomic quantity $C_t / Y_t$? It will benefit our understanding to consider each of these questions ...


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If these T-bills mature and are repaid then you are correct money supply will decrease. In fact that might be desirable. Just because central bank wants to increase money supply in one year that does not mean they will not want to decrease it at some further period. When the T-bill matures central bank also have option to then buy new T-bill to replace the ...


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