|3. Is There Empirical Support for the 'Modern' View of Macroeconomics?|
|The title of this chapter is the same as the title of a paper that
can be read or downloaded from this site:
Is There Empirical Support for the 'Modern' View of
You should read this paper
before reading this chapter. The paper is a comparison of the
properties of the MC3 model to those of the "modern-view"
model. The experiment in Table 2 in the paper, which is a U.S. price shock
holding the U.S. nominal interest rate (RS) constant, can be duplicated
on this site. The steps are as follows:
Once the model is solved you can examine the results. If you have done the experiment correctly, your comparisons (between your dataset and MC3BASE) will match the comparisons in the paper, subject to slight rounding error. You can, of course, examine many more variables and periods than are presented in the paper. Remember that the flow variables are presented in the output at annual rates. In Table 2 in the paper the results for the change in nominal after tax profits, <>(PIEF-TFG-TFS+PX*PIEB-TBG-TBS), and capital gains, CG, are presented at quarterly rates.
The use of the historical errors is important. This allows the perfect tracking solution to be the base path, from which changes can then be made. If you did not use the historical errors, you would have to first create a base path of predicted values, which the new predicted path (after the coefficient change in equation 10) would be compared. See Section 2.6 of The US Model Workbook for more discussion of this.
The estimates of equation (2) presented in the paper are simply the estimates of equation 25, the CG equation.