Application of the IS-MP-IA Model to the Slovene Economy and Policy Implications
This article extends the IS-MP-IA model (Romer, 2000) and applies the GARCH process (Engle, 1982, 2001) to study output variations in Slovenia. Equilibrium GDP in Slovenia is found to have a positive relationship with real depreciation and the world output and a negative relationship with the federal funds rate and the expected inflation rate. The insignificant coefficient of real deficit spending suggests that the Ricardian-equivalence theory may hold for Slovenia. Although real depreciation is expected to help net exports, its relatively small value indicates that it would be appropriate to pursue a stable exchange rate policy.
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Volume (Year): 58 (2005)
Issue (Month): 2 ()
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