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Empirical determination of aggregate demand and supply curves: The example of the RWI Business Cycle Model

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  • Heilemann, Ullrich
  • Findeis, Hagen
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    Abstract

    Macroeconometric models are often criticised for being too complex and difficult to read in theoretical terms. To overcome these difficulties, Hickman suggested the calculation of a model's implicit aggregate demand/supply (AD/AS) structure. The method helps to understand models and their main properties in theoretical terms and facilitates detailed model comparisons. This paper uses the AD/AS–IS/LM apparatus to analyse the simulation properties of the RWI (Rheinisch-Westfälisches Institut für Wirtschaftsforschung) Business Cycle Model, a medium-sized short-term macroeconometric model for Germany. The results confirm theoretical expectations for AD and AS elasticities and reveal particular reactions linked to peculiar model specifications such as an endogenous government sector. The results are also much in line with a previous study in a multi-country model context.

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    Bibliographic Info

    Article provided by Elsevier in its journal Economic Modelling.

    Volume (Year): 29 (2012)
    Issue (Month): 2 ()
    Pages: 158-165

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    Handle: RePEc:eee:ecmode:v:29:y:2012:i:2:p:158-165

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    Web page: http://www.elsevier.com/locate/inca/30411

    Related research

    Keywords: AS AD; IS LM model; Econometric modelling; Macroeconometrics; Simulation;

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    1. David H. Romer, 2000. "Keynesian Macroeconomics without the LM Curve," Journal of Economic Perspectives, American Economic Association, vol. 14(2), pages 149-169, Spring.
    2. Lawrence R. Klein & Arthur Doud & E. Sojo, 1985. "Simplification of Large Scale Macroeconometric Models," Eastern Economic Journal, Eastern Economic Association, vol. 11(1), pages 28-40, Jan-Mar.
    3. David Colander, 2003. "The Strange Persistence of the IS/LM Model," Middlebury College Working Paper Series, Middlebury College, Department of Economics 0331, Middlebury College, Department of Economics.
    4. Wallis, Kenneth F, 1993. "Comparing Macroeconometric Models: A Review Article," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 60(238), pages 225-37, May.
    5. Michel De Vroey & Kevin D. Hoover, 2004. "Introduction: Seven Decades of the IS-LM Model," History of Political Economy, Duke University Press, vol. 36(5), pages 1-11, Supplemen.
    6. B Bhaskara Rao, 2005. "The Nature of the ADAS Model Based on the ISLM Model," Macroeconomics, EconWPA 0510001, EconWPA.
    7. Wallis, Kenneth F., 2004. "Comparing empirical models of the euro economy," Economic Modelling, Elsevier, Elsevier, vol. 21(5), pages 735-758, September.
    8. Robert E. Lucas, Jr., 2004. "Keynote Address to the 2003 HOPE Conference: My Keynesian Education," History of Political Economy, Duke University Press, vol. 36(5), pages 12-24, Supplemen.
    9. Duggal, Vijaya G & Klein, Lawrence R & McCarthy, Michael D, 1974. "The Wharton Model Mark III: A Modern IS-LM Construct," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 15(3), pages 572-94, October.
    10. Heilemann, Ullrich & Munch, Heinz Josef, 1992. "Understanding Macroeconomic Models: Structural Sensitivity Analysis of a Medium-Sized Model," Computer Science in Economics & Management, Society for Computational Economics, vol. 5(3), pages 247-70, August.
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