Consider the following model: R t = Î² 0 + Î² 1 M t + Î² 2

Question:

Consider the following model:

R_t = Î²₀ + Î²₁M_t + Î²₂Y_t + u_1t

Y_t = Î±₀ + Î±₁R_t + u_2t

where M_t (money supply) is exogenous, R_t is the interest rate, and Y_t is GDP.

a. How would you justify the model?

b. Are the equations identified?

c. Using the data given in the following table, estimate the parameters of the identified equations. Justify the method(s) you use.

GDP (Y1) ТВ6 (Xз) Observation M2 (Y2) GPDI (X1) FEDEXP (X2) 3,771.9 3,898.6 4,105.0 4,341.5 4,319.6 4,311.2 4,540.9 4

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Basic Econometrics

ISBN: 978-0073375779

5th edition

Authors: Damodar N. Gujrati, Dawn C. Porter

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Question Posted: May 29, 2018 03:52 AM

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Consider the following model: R t = Î² 0 + Î² 1 M t + Î² 2

Question:

Step by Step Answer:

a The ISLM model of macroeconomics may be used to justify this model b By the order condi...View the full answer

Basic Econometrics

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