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The Dynamics of a Two-Country Minimodel under Rational Expectations

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  • Paul R. Masson

Abstract

The stability and steady-state properties of a small model of the United States and the Rest of the World (MINIMOD) are examined. It is shown that the marginal propensity to consume out of wealth is a crucial parameter, and estimates are chosen to ensure stability of the model. The need to stabilize government debt as a ratio to GNP is discussed, and a simulation rule is included that adjusts tax rates accordingly. Finally, the dynamics of the model in response to monetary and fiscal shocks are related to the following structural features: the J-curve, lags in money demand, and price stickiness.

Suggested Citation

  • Paul R. Masson, 1987. "The Dynamics of a Two-Country Minimodel under Rational Expectations," Annals of Economics and Statistics, GENES, issue 6-7, pages 37-69.
    • Handle: RePEc:adr:anecst:y:1987:i:6-7:p:37-69
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    File URL: http://www.jstor.org/stable/20075648
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    Cited by:

    1. Agnès Bénassy & Henri Sterdyniak, 1992. "La détermination des taux de change dans les modèles multinationaux : l'état de l'art," Économie et Prévision, Programme National Persée, vol. 104(3), pages 39-71.
    2. Mitchell, Peter R. & Sault, Joanne E. & Wallis, Kenneth F., 2000. "Fiscal policy rules in macroeconomic models: principles and practice," Economic Modelling, Elsevier, vol. 17(2), pages 171-193, April.
    3. Ken Chamuva Shawa, 2016. "Drivers Of Private Saving In Sub-Saharan African Countries," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 41(2), pages 77-110, June.

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