Suppose yt follows a second order FDL model: yt = a0 + (0zt + (1zt-1 + (2zt-2
Question:
yt = a0 + (0zt + (1zt-1 + (2zt-2 + ut.
Let z* denote the equilibrium value of zt and let y* be the equilibrium value of yt, such that
y* = a0 + (0z* + (1z* + (2z*.
Show that the change in y*, due to a change in z*, equals the long-run propensity times the change in z*:
(y* = LRP((z*.
This gives an alternative way of interpreting the LRP.
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Adding logprgnp to equation 1038 gives logprepop 666 ...View the full answer
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Introductory Econometrics A Modern Approach
ISBN: 978-0324660548
4th edition
Authors: Jeffrey M. Wooldridge
Question Posted:
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