ECON 3498 HW7 Assignment Example | Topics and Well Written Essays - 250 words

ECON 3498 HW7 - Assignment Example ovariance matrix without a degrees of freedom correction from a VAR(p)model, cT is a sequence indexed by the sample size T ,and φ(n, p) is a penalty function which penalizes large VAR(p) models. For the last few years, the claim that an increase in economic growth leads to an increase in inflation and that decreased growth reduces inflation. All other things being equal, an increase in economic growth must cause inflation to drop. Under the assumption of sticky nominal wages (traditional Keynesian asymmetry), negative monetary shocks have greater real impact than positive monetary shocks. According to Ravn et al (1999), sticky nominal wages will render the aggregate supply curve convex. In the extreme case, the aggregate supply curve is vertical at the point where the nominal wage is in equilibrium. A positive monetary shock will increase aggregate demand along the vertical segment of the aggregate supply curve leaving real economy unchanged, at least in the short run. Residuals from this regression show changes in the intended funds rate not taken in response to information about future economic developments. The resulting series for monetary shocks should be relatively free of both endogenous and anticipatory actions.† To measure the effects of monetary policy on output it is enough that the shock is orthogonal to output forecasts. The shock does not have to be orthogonal to price, exchange rate, or other forecasts. It may be predictable from time t information; it does not have to be a shock to agents or the Fed’s entire information