The title of this chapter is the same as the title of a paper that
can be read or downloaded from this site:
Fed Policy and the Effects of a Stock Market Crash on the Economy.
You should read this paper
before reading this chapter. The paper uses the MC2 model to analyze
Asiatype crises. The two experiments in this paper
("No Boom" and "Crash") can be duplicated
on this site.
This is explained in Chapter 4 of the
MC2 Model Workbook. These experiments
can also be performed using the MC3 model. The steps for the
first experiment, the "No Boom" experiment, are:
 Click "Solve" under "MC3 Model"
in the left menu and copy MC3BASE to a dataset
you have named.
 Click "Set prediction period" and set the period to be
1995 through 2004.
 Click "Drop or add equations" and
for the United States drop the CG and RS equations (equations
25 and 30).
 Click "Use historical errors" and set the option to use
the historical
errors.
 Click "Change exogenous variables" and ask to change RS
for the United States. Then enter the bill rate values under "No Boom" in
Table 3 of the paper. Then ask to change CG for the United States, and
ask to replace each existing value with 521.28 (this is a quarterly
rate of 130.32, which is used in the paper).
Be sure to save the changes once you are done.
 Click "Solve the model and examine the results".
Once the model is solved you can examine the results.
You can then
compare these results using the MC3 model with those in the paper using the
MC2 model. The particular variable of interest is GDPR, real GDP.
The following are the steps for the second experiment,
the "Crash" experiment.
 Click "Solve" under "MC3 Model"
in the left menu and copy MC3BASE to a dataset
you have named.
 Click "Set prediction period" and set the period to be
1999 through 2004.
 Click "Drop or add equations" and
for the United States drop the CG and RS equations (equations
25 and 30).
 Click "Use historical errors" and set the option to use
the historical
errors.
 Click "Change exogenous variables" and ask to change RS
for the United States. Then for the 1999:32004:4 period
enter 3.0 for the bill rate values. Leave the base values for
1999:1 and 1999:2 unchanged. Then ask to change CG for the United States, and
enter 33598.8 for 1999:3 (this is a quarterly rate of 8399.7, which is
used in the paper). Leave the other values unchanged.
Be sure to save the changes once you are done.
 Click "Solve the model and examine the results".
