Category: Econometrics Models
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Harrod Domar Model What HD model does? Its purpose is to identify the necessary condition for achieving steady economic growth. It is a post-Keynesian Model, developed in 1930 – 1940s. Formula: g = s / θ – δ (No population growth) g = s / θ – δ – n (With population growth) Assumptions: Dynamics:…
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To save or not to save, that is the question. Two-period consumption saving model: Asumptions: An example: Consumption Optimisation using the Euler equation: Euler Equation is about the finding out the optimal allocation of consumption. When the marginal rate of substitution equal to the relative price of consumption -(1+r), you find the optimal consumption allocation…
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If monetary policy is not independent, the government may exploit inflation for vote gains, assuming unemployment in the short-run following the Phillips Curve. Policy Invariance (New classical macroeconomics) New classical macroeconomics affect norminal but not real variables Demand deviates from long-run supply only if prices are different from what is expected. The implication is that…
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IS-MP-PC model can be used to better understand the dynamic of Monetary Policy Dynamics. The model has three elements to it. Putting three elements together we can get the IS-MP-PC model. Substitutes Monetary Policy Curve into IS curve, you obtain the IS-MP curve: If beta > 1 then increase in inflation lead to higher increase…