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

  • Heilemann, Ullrich
  • Findeis, Hagen
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    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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    File URL: http://www.sciencedirect.com/science/article/pii/S0264999311002215
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    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
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30411

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    1. Kenneth F. Wallis, 2004. "Comparing Empirical Models of the Euro Economy," Econometric Society 2004 Australasian Meetings 14, Econometric Society.
    2. 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.
    3. B Bhaskara Rao, 2007. "The nature of the ADAS model based on the ISLM model," Cambridge Journal of Economics, Oxford University Press, vol. 31(3), pages 413-422, May.
    4. Wallis, Kenneth F, 1993. "Comparing Macroeconometric Models: A Review Article," Economica, London School of Economics and Political Science, vol. 60(238), pages 225-37, May.
    5. David Colander, 2004. "The Strange Persistence of the IS-LM Model," History of Political Economy, Duke University Press, vol. 36(5), pages 305-322, Supplemen.
    6. David Romer, 2000. "Keynesian Macroeconomics without the LM Curve," NBER Working Papers 7461, National Bureau of Economic Research, Inc.
    7. 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, vol. 15(3), pages 572-94, October.
    8. 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.
    9. 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.
    10. 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.
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