Dynamics of Macroeconomic Adjustment with Growth: Some Simulation Results
This paper examines the impact of several macroeconomic policies, both demand and supply management policies, on economic activity within a small macroeconomic simulation model. The model is based on a standard analytical framework that underlies adjustment policies in developing economies (Des). The standard approach has been to use aggregate government expenditure as an instrument of fiscal policy to shock economic activity in a DE, with a negative dynamic response typically observed. In the context of such a small macroeconomic simulation model we decompose government expenditure into consumption and investment expenditure. Simulation exercises with and without model-consistent expectations throw up some contrasting results in the sense that fiscal policy can influence output positively through the effects of public sector investment on private investment in a DE such as India. [F43, E62]
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Volume (Year): 15 (2001)
Issue (Month): 1 ()
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- Ray C. Fair & John B. Taylor, 1980.
"Solution and Maximum Likelihood Estimation of Dynamic Nonlinear Rational Expectations Models,"
Cowles Foundation Discussion Papers
564, Cowles Foundation for Research in Economics, Yale University.
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- Ghani, Ejaz, 1991. "Rational expectations and price behavior : A study of India," Journal of Development Economics, Elsevier, vol. 36(2), pages 295-311, October.
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