The MCH Model Workbook · 1.2. MCH MODEL 9 1.2 MCH Model The MCH model on the website is the latest...

The MCH Model Workbook

Ray C. Fair

April 27, 2012

Contents

1 Model Updates 71.1 Different Versions of the MC Model . . . . . . . . . . . . . . . . . . 71.2 MCH Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91.3 Trade Share Equations . . . . . . . . . . . . . . . . . . . . . . . . . 13

2 The MCH Model on the Website 152.1 Notation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152.2 Solution Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152.3 Changing Stochastic Equations . . . . . . . . . . . . . . . . . . . . . 172.4 Creating Base Datasets . . . . . . . . . . . . . . . . . . . . . . . . . 172.5 Treatment of the EMU Regime . . . . . . . . . . . . . . . . . . . . . 18

3 Some Properties of the Model 193.1 COG Increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203.2 TRGHQ Increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223.3 D1G Decrease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243.4 RS Increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263.5 CG Increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 283.6 US Price Shock, RS exogenous . . . . . . . . . . . . . . . . . . . . . 303.7 US Dollar Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . 32

4 Estimating How the Macroeconomy Works 354.1 Testing for a New Economy in the 1990s (Chapter 6) . . . . . . . . . 364.2 Evaluating a ‘Modern’ View of Macroeconomics (Chapter 7) . . . . . 384.3 Estimated European Inflation Costs from Expansionary Policies (Chap-

ter 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 404.4 Evaluating Policy Rules (Chapter 11) . . . . . . . . . . . . . . . . . . 44

5 “Policy Effects in the Post Boom U.S. Economy” 475.1 Experiment 1: No Tax Cuts . . . . . . . . . . . . . . . . . . . . . . . 485.2 Experiment 2: No G Increase . . . . . . . . . . . . . . . . . . . . . . 50

3

4

5.3 Experiment 3: No RS Decrease . . . . . . . . . . . . . . . . . . . . . 525.4 Experiment 4: No Stimulus—Experiments 1, 2, and 3 . . . . . . . . . 545.5 Experiment 5: No Stimulus and No Stock Market Decline . . . . . . . 565.6 Experiment 6: No Stimulus and No Export Decline . . . . . . . . . . 585.7 Experiment 7: Experiments 5 and 6 Combined . . . . . . . . . . . . . 60

6 “Evaluating Inflation Targeting” 616.1 Experiment 1: Effects of a Decrease in RS . . . . . . . . . . . . . . . 616.2 Experiment 2: Effects of a Positive Price Shock: RS Exogenous . . . 616.3 Experiment 3: Effects of a Positive Price Shock: RS Endogenous . . . 626.4 Experiment 4: Effects of a Positive Demand Shock: RS Exogenous . . 646.5 Experiment 5: Effects of a Positive Demand Shock: RS Endogenous . 66

7 “Possible Macroeconomic Consequences of Large Deficits” 697.1 Run 1: Baseline Run . . . . . . . . . . . . . . . . . . . . . . . . . . 707.2 Run 3: Sluggish Stock Market . . . . . . . . . . . . . . . . . . . . . 727.3 Run 4: Income Tax Increase . . . . . . . . . . . . . . . . . . . . . . 757.4 Run 5: Transfer Payment Decrease . . . . . . . . . . . . . . . . . . . 787.5 Run 6: National Sales Tax . . . . . . . . . . . . . . . . . . . . . . . 81

8 “Estimated Effects of a Yuan Appreciation” 858.1 Yuan Appreciation: Full Version of the Model . . . . . . . . . . . . . 868.2 Yuan Appreciation: Chinese PY Equation Dropped . . . . . . . . . . 89

9 “Estimated Effects of the U.S. Stimulus Bill” 939.1 Stimulus Experiment . . . . . . . . . . . . . . . . . . . . . . . . . . 94

10 “Is Fiscal Stimulus a Good Idea?” 9710.1Table 1: Transfer Payment Multipliers . . . . . . . . . . . . . . . . . 9810.2Table 5: Results for WAIT, RULE: 1992:1–2005:4 . . . . . . . . . . . 101

11 “What It Takes to Solve the U.S. Deficit Problem” 10511.1Table 1: Transfer Payment Multipliers . . . . . . . . . . . . . . . . . 10611.2Table 2: Base Run . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10811.3Table 3: Transfer Payment Decrease of Two Percent of GDP . . . . . 111

12 “How Should the Fed Report Uncertainty?” 113

Preface

The first chapter discusses the various versions of the MC model, and the secondchapter discusses how to use the latest version (the MCH model) on the website.The remaining chapters discuss various experiments that can be performed usingthe model. These are experiments I have done in previous papers. They give agood idea of the properties of the model. The experiments in all the chapters exceptChapters 7, 9, and 11 use actual, historical data. The experiments in Chapters 7, 9,and 11 use observations beyond the end of the actual data. These observations areforecast data from the April 27, 2012, forecast.

One or two tables are presented per experiment, but these tables are not discussedin any detail. The reader is referred to the relevant papers for this discussion. Resultsare generally presented only for the United States, but the entire MCH model hasbeen used for all the experiments. The results in this workbook will not matchexactly the results in the papers that use an earlier version of the MC model. Also,although the prediction periods are the same, some of the data used here differ fromthose used in earlier versions because the data have been revised. The latest reviseddata are used for the MCH model.

If you run an experiment, you can examine the results for any country and anyvariable in the model, including the bilateral trade flows—exports from country i tocountry j. You can also compare the results using the MCH model to results usingearlier versions of the MC model to see how much the properties of the MC modelhave changed over time. In general you will see that the changes are small.

You will see that for most experiments the historical errors are added to theequations before the experiment is performed. This allows the perfect trackingsolution to be the base path, from which changes can then be made. If you did notuse the historical errors, you would have to first create a base path of predicted values,to which the new predicted path (after the experiment has been performed) wouldbe compared. See Section 2.6 of The US Model Workbook for more discussion ofthis.

5

6

The program that was used to generate the results in the tables in this workbookis not the same as the program on the website. There may thus be a few roundingdifferences between the results in the tables and the results you generate using thewebsite. In addition, when you changeCG for a particular experiment, you will seethat the actual changes differ slightly from the changes you entered. This has to duewith the fact that the left hand side variable of the CG equation is CG divided byY S−1 ·PX−1, wherePX is endogenous. The way the coding works on the website,changes in PX affect your chosen values ofCG. This is not true of the coding usedto generate the results in this workbook, which leads to slight differences betweenthe website results and the results in this workbook. The differences are, however,small and can safely be ignored.

Finally, this workbook is not self contained; it assumes that the reader has someunderstanding of the model. You should at least skim Fair (2004), Estimating Howthe Macroeconomy Works, before using this workbook.

Ray C. FairApril 27, 2012

Chapter 1

Model Updates

1.1 Different Versions of the MC Model

The MCA Model

The MCA model on the website is the exact model in Fair (2004), Estimating Howthe Macroeconomy Works—see Chapter 2 and Appendices A and B. If you want toduplicate the results in this book, you should work with the MCA model. It has itsown workbook: The MCA Model Workbook, 2003.

The MCB Model

The MCB model on the website is the model used for the results in Fair (2005),“Policy Effects in the Post Boom U.S. Economy.” It has its own Appendices A andB and its own workbook: The MCB Model Workbook, October 29, 2004. If youwant to duplicate the results in this paper, you should work with the MCB model.

The MCC Model

The MCC model is used for the results in Fair (2007a), “A Comparison of Five Fed-eral Reserve Chairmen: Was Greenspan the Best?” and in Fair (2007b), “EvaluatingInflation Targeting Using a Macroeconometric Model.” It has its own AppendicesA and B and its own workbook: The MCC Model Workbook, August 1, 2006. If youwant to duplicate the results in these two papers, you should work with the MCCmodel.

7

8 CHAPTER 1. MODEL UPDATES

The MCD Model

The MCD model is not used for any papers on the website. It has its own AppendicesA and B and its own workbook: The MCD Model Workbook, March 1, 2009.

The MCE Model

The MCE model is used for the results in Fair (2012), “Has Macro Progressed?”in Fair (2011), “Possible Macroeconomic Consequences of Large Future FederalGovernment Deficits,” in Fair (2010a), “Estimated Macroeconomic Effects of aChinese Yuan Appreciation,” and in Fair (2010b), “Estimated Macroeconomic Ef-fects of the U.S. Stimulus Bill.” It has its own Appendices A and B and its ownworkbook: The MCE Model Workbook, January 30, 2010. If you want to duplicatethe results in these four papers, you should work with the MCE model.

The MCF Model

The MCF model is not used for any papers on the website. It has its own AppendicesA and B and its own workbook: The MCF Model Workbook, January 29, 2011.

The MCG Model

The MCG model is not used for any papers on the website. It is the same as theMCF model except the version of the US model used is the April 28, 2011, versionrather than the January 29, 2011, version. Appendix B is the same as for the MCFmodel, and Appendix A is the appendix for the US model dated April 28, 2011.The MCG model has no workbook.

The MCH Model

The MCH model is described in this workbook. It has its own Appendices A andB. The model is dated April 27, 2012. It is used for the results in Fair (2012b), “IsFiscal Stimulus a Good Idea?” in Fair (2012c), “What It Takes To Solve the U.S.Government Deficit Problem,” and in Fair (2012d), “How Should the Fed ReportUncertainty?”

1.2. MCH MODEL 9

1.2 MCH Model

The MCH model on the website is the latest update of the MC model. It includesthe April 27, 2012, update of the US model. The updating consists of collectingthe latest data and then reestimating the equations through the end of the data.Some specification changes have been made in moving from the MC model inFair (2004)—the MCA model—to the MCH model, and these are discussed below.These changes are fairly modest in that the properties of the MCA and MCH modelsare similar. This can be seen by running the same experiment for each model.

You should read Chapter 2 in Fair (2004) before reading this workbook andbefore working with the MCH model. The following is a discussion of the changesthan have been made from the model in Fair (2004).

ROW Model Changes Since 2004

A number of the specification changes are concerned with simplifying the modelsomewhat. First, the labor force variable, L1, is now the labor force of both menand women, and POP1 is the labor-force-age population of both men and women.The variables L2 and POP2 have been dropped. In addition, the armed forcesvariable, AF , has been dropped. These changes were dictated in part by dataavailability. Equation 14 now explains L1, and equation 15 has been dropped. Theunemployment rate,UR, is now by definition (L1−J)/L1, whereJ is employment.Also, the wage equation, equation 12, has been dropped, and the wage variable,W ,is no longer used in the model. The data for W for most countries are problematic,and the decision was made to drop the variable.

Second, the potential output variable, Y S, is now obtained from peak-to-peakinterpolations of log Y S for each country. The demand pressure variable, ZZ, isthen taken to be log Y − log Y S, and it is used to replace DP in the price equation5. In addition, UR is used to replace the labor constraint variable, Z, in the laborforce equation 14. These changes mean that the variables JJ , JJP , JJS, and Zcan be dropped.

The MCH model has 52 fewer stochastic equations than the model in Fair (2004)(310 versus 362). The equation changes for the ROW model are:

1. Equation 1: AR dropped. ST, SW, VE, JO added.

2. Equation 2: Variable [A/(PY · Y S)]−1 dropped for all equations.

3. Equation 3: JA, SA, VE, CO, JO, SY, MA, PH, TH, ME, PE dropped. STadded.

4. Equation 4: IT, SW, GR, SP, MA dropped. CA and FR added.


5. Equation 5: GR, ME dropped.

6. Equation 6: FR, NZ dropped.

7. Equation 7: KO dropped.

8. Equation 8: PA dropped.

9. Equation 9: SO, VE, JO dropped.

10. Equation 11: NO, GR, PO, JO, SY, AR, CE, PE dropped.

11. Equation 12: equation eliminated; 7 equations dropped.

12. Equation 14: CA, AU, GE, IT, UK, DE dropped.

13. Equation 15: equation eliminated; 12 equations dropped.

After reestimation and further tests, these equations did not seem reliable, and sothey were dropped.

No new explanatory variables have been introduced in any of the equations. Insome cases a variable that was originally lagged once is now unlagged, and in somecases a variable that was originally unlagged is now lagged once. Also, in somecases a variable that was originally excluded from the equation is now included andvice versa. These are all minor changes. If you want to see exactly the changes, youcan compare Table B.4 in Fair (2004, pp. 252–282) with Table B.4 in Appendix Bof the MCH model. In a few cases an equation that was originally estimated by2SLS is now estimated by OLS. The equations that are estimated by 2SLS are theones in Table B.4 in which the overidentification test is performed. Finally, in theMCH model the base year is 2005 rather than 1995 as in the original model. Allvariables that had “95” in their name now have “00” instead. (To be consistent withthe 2005 base year, the names should use “05” rather than “00,” but this was notdone because it is a pain to change so many variable names—the “00” notation wasstarted for the MCD model.)

US Model Changes Since 2004

The following are specification changes that have been made to the US model sincethe forecast dated October 31, 2005. Prior to this forecast the model is the versionin Fair (2004) (except for reestimation each quarter). The latest estimates and exactspecification of the model are presented in Appendix A: The US Model: April 27,2012. The estimates and specification of the version of the model in Fair (2004)are in Appendix A in this book.

1.2. MCH MODEL 11

Many of the specification changes are due to changes in variable definitions inthe NIPA and the Flow of Funds accounts. Responding to these changes requireseliminating some variables in the model, adding others, and changing some iden-tities. These changes are tedious, but minor, and they are not discussed below. Ifyou want to see the exact specification changes for each equation, you can compareAppendix A in Fair (2004) to Appendix A: The US Model: April 27, 2012.

1. In equation 1, which explains CS, the time trend T has been dropped.

2. Equation 9, which explainsMH , has been dropped. The recent data onMH ,which are from the Flow of Funds accounts, are not sensible, and soMH hassimply been taken to be exogenous.

3. In equation 14, which explains HF , the time trend T has been added.

4. In equation 17, which explains MF , the interest rate variable is unlaggedrather than lagged once. Also, the dummy variable D981 has been dropped.

5. In equation 19, which explains INTF , the long run restriction has beenrelaxed and the weights on the short term and long term interest rates in theinterest rate variable have been changed.

6. Equation 20, which explains IV A, has been dropped. The values of IV Asince 2007:4 have been extreme, and it does not seem possible to explainthem. IV A has thus been taken to be exogenous.

7. Equation 21, which explained CCF , has been dropped. There have beentoo many changes in depreciation tax rates for estimation to be sensible.These changes are now incorporated into variableD6G, which is taken to beexogenous.

8. Equation 22, which explains BO, has been dropped. Similar to the case forIV A, the values ofBO since 2007:4 have been extreme, and it does not seempossible to explain them. BO has thus been taken to be exogenous. Thismeans that exogenous variable RD is no longer used in the model.

9. Equation 27, which explains IM , is estimated under the assumption of noserial correlation of the error term.

10. In equation 29, which explains INTG, the long run restriction has beenrelaxed, the weights on the short term and long term interest rates in theinterest rate variable have been changed, and the equation is now estimatedunder the assumption of a first order serially correlated error.


11. The identity explaining BR has been dropped, and BR has been taken to beexogenous. This means that exogenous variable G1 is no longer used in themodel. Dropping this equation means that BR is no longer tied to MB; it issimply exogenous. As with BO, the values of BR since 2007:4 have beenextreme, and it does not seem possible to explain them.

12. Variables PKH and PSI14 have been added, and in equation 89, whichdetermines the wealth variable, AA, PIH has been replaced with PKH .PKH ·KH is a better measure of housing wealth than isPIH ·KH . PKH isthe market price ofKH . It is based on data from the Flow of Funds accounts.PKH · KH is the market value of the stock of housing, KH . PKH isexplained by a new equation, equation 55, which is PKH = PSI14 · PD,where PSI14 is taken to be exogenous. Relative housing price changes arethus reflected in changes in PSI14.

13. In equations 47, 48, 90, and 91, POP has been replaced with (POP ·PH).This change ties the progressivity of the personal income tax system to realper capita income rather than nominal per capita income.

Beginning with the October 31, 2009, forecast, the forecast horizon was length-ened to about 11 years. In the process of doing this the most important exogenousnominal variables were tied to the GDP deflator. To be precise, for an exogenousnominal variable y a real variable xwas created as y/pwhere p is the GDP deflator.Then x was treated as exogenous, and the equation y = p · x was added to themodel. A “Q” is added at the end of a name of an exogenous nominal variable todenote that the variable is real, and equations are added linking the nominal valuesto the real values.

Also, nine variables were added to the list of variables that can be examinedusing the output part of the web software.

RECGZGDP = RECG/GDPEXPGZGDP = EXPG/GDPSGPZGDP = −SGP/GDPAGZGDP = −AG/(4 ·GDP )INTGZGDP = INTG/GDPASZGDP = −AS/(4 ·GDP )SRZGDP = SR/GDPPCGDPR4 = 100 · (GDPR/GDPR(−4)− 1)PCGDPD4 = 100 · (GDPD/GDPD(−4)− 1)

1.3. TRADE SHARE EQUATIONS 13

Beginning with the January 28, 2012, forecast, equations 1, 2, 3, 4, 10, 12,and 27 have been estimated under the assumption that the constant term changeslinearly between 1968:4 and 1988:4, where the slope is estimated. In addition, thecoefficient of the time trend (T ) in equation 10 is assumed to change linearly inthis period, where the slope is estimated. This introduces the variable cnst2 inthe equations and the variable TB in equation 10. This estimation method is jointwork in progress with Don Andrews, where for the general method the beginningand ending quarters for the linear change are estimated (along with the slope). Forpresent purposes the beginning and ending quarters have just been fixed at 1968:4and 1988:4, respectively.

1.3 Trade Share Equations

There are 1,333 estimated bilateral trade share equations in the MCH model.aijt is the fraction of country i’s exports imported from j in quarter t. Foreach i, j trade share equation, the left hand side variable is log(aijt + .00001).The three right hand side variables are the constant, log(aijt−1 + .00001), andPX$it/(

∑58k=1 akjt−1PX$kt). The summation for the third variable excludes the

oil exporting countries, which are SA, VE, NI, AL, IA, IN, IQ, KU, LI, UA. Also,an element in the summation is skipped if k = j. Trade share equations are notestimated (i.e., trade shares are taken to be exogenous) for the exports of oil export-ing countries. See Fair (2004, pp. 57–58) for further discussion of the trade shareequations.

Chapter 2

The MCH Model on the Website

This chapter discusses practical things you should know when working with theMCH model. It relies on Chapter 2 in Fair (2004) and on the MCH model Appen-dices A and B on the website. If you are planning to work with the MCH model,it may be helpful to have hard copies of these items available for ease of reference.In what follows all references to chapters and tables are to those in Fair (2004) orin the MCH model Appendices A and B on the website.

2.1 Notation

The notation for the variables in the ROW model is presented in Tables B.1 and B.2in Appendix B. Two letters denote the country (CA for Canada, JA for Japan, etc.),and the abbreviations are given in Table B.1. Up to five letters denote the variable(C for consumption, I for investment, etc.), and the names are given in Table B.2in alphabetical order. The complete name of a variable for a country consistsof the country abbreviation plus the variable name, such as CAC for Canadianconsumption, JAI for Japanese investment, etc. The two letters EU denote theEuropean countries in the model that are part of the EMU. These are: AU, FR, GE,IT, NE, FI, BE, GR, IR, PO, SP. (Luxembourg, which is also part of the EMU, isnot in the model.) (GR joined January 1, 2001.)

2.2 Solution Options

There are five choices you can make regarding the solution of the MCH model.

1. The prediction period, where the default is 2013-2022.

15

16 CHAPTER 2. THE MCH MODEL ON THE WEBSITE

2. Whether you want the entire MCH model solved or just the individual countrymodels by themselves. If you choose the latter, none of the variables in onecountry affect the variables in any other country. Each individual countrymodel stands alone, and all foreign-sector variables in an individual countrymodel are taken to be exogenous. The default is to solve the entire MCHmodel.

3. Whether or not you want the trade share equations used. If you do not wantthe trade share equations used, the trade shares are taken to be exogenousand equal to the actual values prior to 2011:1 and to the predicted values inthe base dataset (MCHBASE) from 2011:1 on. This trade share option isnot relevant if you choose to have the individual country models solved bythemselves since in this case the output from the trade share calculations doesnot affect any individual country model. The default is to use the trade shareequations.

4. The number of within country iterations (denoted LIMITA) and the number ofacross country iterations (denoted LIMITB). The defaults are 10 for LIMITAand 10 for LIMITB. As discussed below, these options are useful for checkingif the model has successfully solved.

5. Whether or not you want to use the historical errors. The default is to set all theerror terms equal to zero. If you use the historical errors and make no changesto any of the exogenous variables and coefficients, then the solution valuesof the endogenous variables will be the actual values—a perfect trackingsolution—aside from rounding error. This option can be useful for multiplierexperiments, as discussed below.

The size of the model is discussed in Section 2.1 in Chapter 2 in Fair (2004),and the way in which the model is solved is discussed in Section B.6 in AppendixB. Because the MCH model (unlike the US model alone) is not iterated until con-vergence (because LIMITA and LIMITB above are fixed), it may be the case thatafter the program finishes the model did not really solve. If you are concernedabout this, there is one check that you can perform, which is to increase LIMITAand LIMITB. If the model has correctly solved, it should be the case the increasingLIMITA and LIMITB has a very small effect on the solution values. You can thusincrease LIMITA and LIMITB and see if the output values change much. If theydo not, then you can have considerable confidence that the model has been solvedcorrectly. The maximum values of LIMITA and LIMITB that you are allowed are15 and 15, respectively. Another check is that if the predicted values are eitherextremely large or extremely small, then the model is unlikely to have solved. If

2.3. CHANGING STOCHASTIC EQUATIONS 17

this is true, you have probably made extreme changes to one or more exogenousvariables or coefficients.

2.3 Changing Stochastic Equations

There are four changes you can make to any of the 307 stochastic equations:

1. Drop (or add back in) an equation. When an equation is dropped, the variabledetermined by the equation is taken to be exogenous, and it can be changedif desired. The default values for the variable are the historical values whenthey exist and forecast values from the base dataset otherwise.

2. Take an equation to begin after the beginning of the basic prediction period.When an equation begins later than the basic prediction period, the variabledetermined by the equation is taken to be exogenous for the earlier period,and it can be changed if desired. The default values for the variable are thehistorical values when they exist and forecast values from the base datasetotherwise. For quarterly countries the period that you want the equation tobegin is a quarter, not a year. You can, for example, have an equation beginin 2013:2 when the basic prediction period is 2013-2022.

3. Add factor an equation, where the add factors can differ for different periods.For quarterly countries the add factors are for individual quarters, not years.

4. Change any of the 1,348 coefficients in the equations. You cannot add vari-ables to the equations.

2.4 Creating Base Datasets

If you ask the program to solve the MCH model for any period beginning 2013or later and you make no changes to the coefficients and exogenous variables,the solution values for the endogenous variables will simply be the values that arealready in MCHBASE. If, on the other hand, you ask the program to solve the modelfor a period beginning earlier than 2013, where at least some actual data exist, thesolution values will not be the same as the values in MCHBASE because the modeldoes not predict perfectly (the solution values of the endogenous variables are notin general equal to the actual values). It is thus very important to realize that theonly time the solution values will be the same as the values in MCHBASE whenyou make no changes to the exogenous variables and coefficients is when you aresolving beginning 2011 or later.

18 CHAPTER 2. THE MCH MODEL ON THE WEBSITE

If you want to work with the MCH model for a period for which actual dataexist, you will probably want to use the historical errors (i.e., set the errors equal totheir estimated values and take them to be exogenous). If for any period you use thehistorical errors and solve the model with no changes in the exogenous variablesand coefficients, you will get a perfect tracking solution. This is usually a goodbase to perform various experiments.

2.5 Treatment of the EMU Regime

As noted above, there are 10 countries in the model that are part of the EMUbeginning January 1, 1999: AU, FR, GE, IT, NE, FI, BE, IR, PO, and SP. GRjoined January 1, 2001. EU denotes these countries. Prior to 1999 each of thesecountries has an estimated interest rate reaction function (equation 7), and eachcountry except FI, SP, and GR has an estimated long term interest rate equation(equation 8). In addition, GE has an estimated exchange rate equation where theexchange rate explained is the DM/$ rate, and each of the other countries has anestimated exchange rate equation where the exchange rate explained is the localcurrency/DM rate (equation 9).

For the EMU regime, which begins in 1999:1 for 10 countries and 2001:1 forGR, equations 7, 8, and 9 for the individual EMU countries are dropped from themodel. EU equations 7, 8, and 9 are added beginning in 1999:1.

The software allows you to change the EU interest rate and exchange rate equa-tions. The “country” that you will click is EU. Remember that these equations areonly relevant from 1999:1 on. Also remember that the equations that have beendropped for the individual EMU countries from 1999:1 on are not part of the modelfrom 1999:1 on. They only matter prior to 1999:1. For GR the switch date is 2001:1.

There is one special features of the on line software regarding the EMU regime,which pertains to equations 7 and 8 explaining RS and RB. As mentioned above,for the EMU countries these equations end in 1998:4 (2000:4 for GR). If you areworking with a period prior to 1999:1 and you drop equation 7, you can then changethe RS values using the “Change exogenous variables” option. The variable youchange, however, is notRS butRSA. For Germany (GE), for example, you changeGERSA, not GERS, after you have dropped equation 7 for GE. Similarly, if youdrop equation 8, you change RBA, not RB. These changes pertain only to theEMU countries; for all other countries RS and RB are changed. When you click“Change exogenous variables,” for a non EMU country, ignoreRSA andRBA anduse RS and RB.

Chapter 3

Some Properties of the Model

This chapter presents the experiments that are reported in the appendix in Fair(2012a), “Has Macro Progressed?” The prediction period is 2000:1–2005:4. If youdo the following experiments using the MCE model on the website, you will exactlyduplicate the results reported in the appendix in this paper. This will not be true forthe MCH model since the MCE and MCH models differ somewhat.

19

20 CHAPTER 3. SOME PROPERTIES OF THE MODEL

3.1 COG Increase

This experiment shows that the output multiplier for an increase in governmentpurchases of goods of 1.0 percent of real GDP peaks after four quarters at about 1.9percent of real GDP. Table 3.1 presents selected results for the United States fromthis experiment. If you use the MCH model for this experiment, you will duplicatethe results in this table.

1. Click “Solve” under “MCH Model” in the left menu and copy MCHBASEto a dataset you have named.

2. Click “Set prediction period” and set the period to be 2000 through 2005.

3. Click “Examine the results without solving the model.” List the values ofGDPR for 2000:1–2005:4. Take 1.0 percent of each of these values, andcall them the “COG increases.” Then return to the main menu page.

4. Click “Use historical errors” and set the option to use the historical errors.

5. Click “Change exogenous variables” and ask to change COG for the UnitedStates. Type in the COG increases quarter by quarter. Be sure to save thechanges once you are done.

6. Click “Solve the model and examine the results”.

3.1. COG INCREASE 21

Table 3.1Results for the United States

Predicted Values Divided By or Subtracted From Baseline ValuesPercentage Points

qtr Y PY C I IM EX RS PX PM SPCT UR DEBT

2000.1 0.89 0.08 0.05 0.57 0.06 -0.01 0.16 0.06 -0.03 0.01 -0.19 -0.162000.2 1.40 0.16 0.12 1.37 0.20 -0.02 0.40 0.12 -0.06 0.00 -0.42 -0.202000.3 1.61 0.27 0.19 2.02 0.40 -0.03 0.58 0.21 -0.09 -0.01 -0.58 -0.142000.4 1.66 0.39 0.25 2.54 0.63 -0.06 0.68 0.32 -0.11 -0.02 -0.69 -0.042001.1 1.64 0.48 0.29 3.00 0.87 -0.09 0.72 0.38 -0.17 -0.04 -0.73 0.102001.2 1.59 0.60 0.32 3.23 1.09 -0.11 0.74 0.48 -0.17 -0.06 -0.72 0.272001.3 1.53 0.68 0.33 3.29 1.28 -0.14 0.74 0.55 -0.17 -0.08 -0.69 0.462001.4 1.45 0.75 0.31 3.28 1.43 -0.17 0.74 0.61 -0.16 -0.09 -0.65 0.642002.1 1.38 0.81 0.30 3.18 1.53 -0.18 0.73 0.66 -0.13 -0.10 -0.62 0.852002.2 1.31 0.85 0.28 2.97 1.60 -0.20 0.71 0.70 -0.10 -0.11 -0.57 1.072002.3 1.25 0.90 0.26 2.74 1.63 -0.21 0.70 0.74 -0.08 -0.12 -0.54 1.302002.4 1.20 0.93 0.24 2.51 1.63 -0.22 0.66 0.77 -0.04 -0.12 -0.48 1.542003.1 1.16 0.95 0.22 2.28 1.61 -0.23 0.64 0.80 0.04 -0.13 -0.46 1.782003.2 1.13 0.98 0.21 2.04 1.57 -0.23 0.63 0.83 0.07 -0.12 -0.45 2.002003.3 1.12 0.99 0.20 1.82 1.52 -0.23 0.60 0.85 0.10 -0.12 -0.40 2.202003.4 1.10 1.01 0.20 1.63 1.47 -0.23 0.59 0.86 0.13 -0.11 -0.40 2.422004.1 1.09 1.02 0.21 1.50 1.42 -0.23 0.59 0.88 0.20 -0.12 -0.39 2.652004.2 1.09 1.04 0.22 1.35 1.37 -0.22 0.57 0.90 0.23 -0.12 -0.38 2.862004.3 1.09 1.05 0.23 1.24 1.33 -0.22 0.55 0.92 0.26 -0.11 -0.37 3.082004.4 1.10 1.07 0.24 1.16 1.30 -0.22 0.54 0.93 0.27 -0.10 -0.37 3.292005.1 1.11 1.09 0.25 1.09 1.27 -0.21 0.54 0.96 0.32 -0.10 -0.37 3.472005.2 1.11 1.10 0.27 1.03 1.24 -0.21 0.55 0.97 0.33 -0.10 -0.38 3.702005.3 1.12 1.12 0.28 0.98 1.23 -0.21 0.55 0.99 0.35 -0.10 -0.39 3.902005.4 1.13 1.13 0.30 0.94 1.22 -0.21 0.54 1.00 0.37 -0.09 -0.39 4.11

• percentage deviations for all but RS, SPCT, UR, and DEBT; absolute deviations for these.• Y = real GDP, PY = GDP deflator, C = total consumption, I = total fixed investment,IM = total imports, EX = total exports, RS = three-month Treasury bill rate,PX = export price index, PM = import price index, SPCT = current account as apercent of GDP, UR = unemployment rate, DEBT = government debt as a percent of GDP.


3.2 TRGHQ Increase

This experiment shows that the output multiplier for an increase in real federalgovernment transfer payments of 1.0 percent of real GDP peaks after six quartersat about 0.9 percent of real GDP. Table 3.2 presents selected results for the UnitedStates from this experiment. If you use the MCH model for this experiment, youwill duplicate the results in this table.



3. Click “Examine the results without solving the model.” List the values ofGDPR for 2000:1–2005:4. Take 1.0 percent of each of these values, andcall them the “TRGHQ increases.” Then return to the main menu page.


5. Click “Change exogenous variables” and ask to change TRGHQ for theUnited States. Type in the TRGHQ increases quarter by quarter. Be sure tosave the changes once you are done.


3.2. TRGHQ INCREASE 23




2000.1 0.20 0.03 0.30 0.50 0.14 0.00 0.04 0.02 -0.01 -0.02 -0.04 0.152000.2 0.46 0.06 0.55 1.02 0.37 0.00 0.12 0.05 -0.01 -0.05 -0.13 0.262000.3 0.69 0.11 0.75 1.53 0.67 -0.01 0.22 0.09 -0.02 -0.10 -0.22 0.372000.4 0.85 0.18 0.92 1.99 1.01 -0.02 0.31 0.15 -0.03 -0.14 -0.31 0.482001.1 0.95 0.24 1.04 2.40 1.35 -0.02 0.38 0.20 -0.06 -0.18 -0.38 0.612001.2 1.00 0.33 1.14 2.73 1.68 -0.03 0.43 0.27 -0.06 -0.21 -0.42 0.772001.3 1.02 0.39 1.20 2.96 2.00 -0.04 0.46 0.32 -0.05 -0.24 -0.45 0.942001.4 1.01 0.45 1.24 3.13 2.27 -0.05 0.48 0.37 -0.04 -0.27 -0.45 1.112002.1 0.97 0.50 1.26 3.19 2.50 -0.04 0.49 0.42 -0.02 -0.30 -0.45 1.322002.2 0.91 0.55 1.27 3.09 2.68 -0.05 0.49 0.47 0.01 -0.34 -0.42 1.532002.3 0.85 0.60 1.27 2.93 2.82 -0.05 0.48 0.50 0.03 -0.36 -0.40 1.772002.4 0.79 0.63 1.27 2.74 2.91 -0.04 0.46 0.53 0.07 -0.38 -0.35 2.012003.1 0.74 0.65 1.25 2.52 2.96 -0.01 0.44 0.56 0.14 -0.40 -0.33 2.262003.2 0.70 0.68 1.24 2.26 2.98 -0.01 0.43 0.59 0.18 -0.40 -0.31 2.482003.3 0.66 0.69 1.22 2.01 2.97 0.01 0.41 0.60 0.22 -0.40 -0.27 2.702003.4 0.63 0.71 1.22 1.79 2.95 0.02 0.39 0.62 0.26 -0.41 -0.25 2.932004.1 0.61 0.72 1.21 1.63 2.91 0.07 0.38 0.64 0.34 -0.43 -0.24 3.162004.2 0.58 0.73 1.21 1.44 2.86 0.09 0.36 0.66 0.38 -0.44 -0.22 3.402004.3 0.57 0.74 1.21 1.29 2.81 0.11 0.34 0.67 0.41 -0.44 -0.20 3.632004.4 0.56 0.75 1.20 1.16 2.76 0.13 0.33 0.68 0.44 -0.44 -0.19 3.852005.1 0.56 0.76 1.20 1.06 2.70 0.19 0.33 0.70 0.51 -0.44 -0.19 4.052005.2 0.57 0.77 1.21 0.98 2.66 0.20 0.33 0.71 0.52 -0.44 -0.20 4.292005.3 0.58 0.78 1.21 0.92 2.62 0.23 0.34 0.73 0.55 -0.44 -0.20 4.502005.4 0.59 0.80 1.23 0.88 2.58 0.24 0.33 0.74 0.58 -0.44 -0.21 4.72



3.3 D1G Decrease

This experiment shows that the output multiplier of a personal income tax ratedecrease of an amount equivalent to the real transfer payment increase in experiment3.2 is similar to the output multiplier of the transfer payment increase. Table 3.3presents selected results for the United States from this experiment. If you use theMCH model for this experiment, you will duplicate the results in this table.



3. Click “Examine the results without solving the model.” List the values ofGDP , THG, Y T , TAUG, POP , and PH for 2000:1–2005:4. Computefor each quarter:

D1Gnew = (THG− .01 ·GDP )/Y T − (TAUG · Y T )/(POP · PH)

Then return to the main menu page.


5. Click “Change exogenous variables” and ask to change D1G for the UnitedStates. Type in the D1Gnew values quarter by quarter. Be sure to save thechanges once you are done.


3.3. D1G DECREASE 25




2000.1 0.19 0.02 0.27 0.50 0.13 0.00 0.02 0.02 0.00 -0.02 -0.03 0.162000.2 0.43 0.05 0.51 0.90 0.34 0.00 0.08 0.04 -0.01 -0.05 -0.09 0.282000.3 0.63 0.09 0.70 1.32 0.61 -0.01 0.16 0.08 -0.01 -0.09 -0.17 0.412000.4 0.78 0.14 0.86 1.72 0.92 -0.01 0.24 0.12 -0.02 -0.13 -0.24 0.532001.1 0.87 0.19 0.98 2.09 1.23 -0.01 0.29 0.16 -0.04 -0.17 -0.29 0.682001.2 0.94 0.27 1.08 2.42 1.54 -0.02 0.33 0.22 -0.03 -0.20 -0.33 0.842001.3 0.97 0.31 1.16 2.65 1.84 -0.03 0.36 0.26 -0.03 -0.23 -0.35 1.022001.4 0.97 0.36 1.20 2.85 2.10 -0.04 0.38 0.30 -0.02 -0.26 -0.35 1.192002.1 0.95 0.40 1.24 2.95 2.33 -0.02 0.39 0.34 0.00 -0.29 -0.35 1.392002.2 0.91 0.45 1.26 2.91 2.52 -0.02 0.39 0.38 0.03 -0.33 -0.33 1.602002.3 0.87 0.48 1.27 2.81 2.67 -0.02 0.38 0.41 0.05 -0.36 -0.31 1.832002.4 0.82 0.51 1.28 2.69 2.78 -0.02 0.36 0.43 0.08 -0.38 -0.27 2.072003.1 0.79 0.52 1.28 2.54 2.86 0.02 0.34 0.46 0.15 -0.41 -0.25 2.302003.2 0.76 0.54 1.28 2.34 2.91 0.03 0.33 0.47 0.18 -0.41 -0.23 2.522003.3 0.74 0.55 1.28 2.15 2.93 0.04 0.31 0.49 0.22 -0.42 -0.20 2.722003.4 0.71 0.57 1.28 1.97 2.93 0.06 0.29 0.50 0.26 -0.43 -0.18 2.942004.1 0.69 0.57 1.28 1.85 2.92 0.11 0.28 0.52 0.33 -0.45 -0.16 3.162004.2 0.67 0.58 1.28 1.68 2.90 0.13 0.26 0.53 0.37 -0.47 -0.14 3.392004.3 0.65 0.59 1.28 1.54 2.87 0.16 0.24 0.54 0.40 -0.48 -0.12 3.612004.4 0.64 0.59 1.28 1.43 2.83 0.18 0.22 0.54 0.43 -0.49 -0.11 3.822005.1 0.65 0.59 1.28 1.33 2.79 0.24 0.22 0.55 0.49 -0.48 -0.11 4.022005.2 0.65 0.60 1.28 1.25 2.76 0.26 0.22 0.56 0.51 -0.49 -0.11 4.242005.3 0.66 0.60 1.29 1.19 2.72 0.29 0.21 0.57 0.54 -0.49 -0.11 4.442005.4 0.67 0.61 1.30 1.15 2.70 0.31 0.20 0.58 0.57 -0.50 -0.10 4.66



3.4 RS Increase

This experiment shows that the output multiplier of an interest rate increase of 1.0percentage points peaks in absolute value after ten quarters at about -0.8 percentof real GDP. Table 3.4 presents selected results for the United States from thisexperiment. If you use the MCH model for this experiment, you will duplicate theresults in this table.




4. Click “Drop or add equations” and drop theRS equation for the United States(equation 30).

5. Click “Change exogenous variables” and ask to change RS for the UnitedStates. Then add 1.0 to all the values. Be sure to save the changes once youare done.


3.4. RS INCREASE 27




2000.1 -0.05 -0.02 -0.09 -0.01 -0.01 -0.01 1.00 -0.05 -0.19 0.03 0.01 0.052000.2 -0.15 -0.04 -0.19 -0.28 -0.07 -0.02 1.00 -0.08 -0.27 0.05 0.04 0.132000.3 -0.27 -0.07 -0.27 -0.68 -0.17 -0.03 1.00 -0.12 -0.32 0.07 0.08 0.242000.4 -0.39 -0.11 -0.35 -1.10 -0.31 -0.05 1.00 -0.17 -0.37 0.09 0.13 0.372001.1 -0.48 -0.17 -0.42 -1.52 -0.46 -0.07 1.00 -0.24 -0.53 0.13 0.18 0.512001.2 -0.57 -0.24 -0.48 -1.93 -0.63 -0.08 1.00 -0.31 -0.57 0.14 0.23 0.652001.3 -0.63 -0.30 -0.54 -2.31 -0.82 -0.09 1.00 -0.37 -0.61 0.16 0.26 0.802001.4 -0.68 -0.36 -0.58 -2.71 -1.00 -0.11 1.00 -0.43 -0.64 0.17 0.29 0.972002.1 -0.71 -0.43 -0.62 -3.04 -1.18 -0.12 1.00 -0.51 -0.75 0.20 0.31 1.112002.2 -0.73 -0.50 -0.65 -3.26 -1.34 -0.13 1.00 -0.57 -0.78 0.24 0.32 1.262002.3 -0.73 -0.56 -0.67 -3.42 -1.49 -0.14 1.00 -0.63 -0.80 0.26 0.33 1.412002.4 -0.72 -0.63 -0.68 -3.55 -1.63 -0.15 1.00 -0.69 -0.83 0.28 0.32 1.562003.1 -0.71 -0.68 -0.69 -3.61 -1.74 -0.19 1.00 -0.75 -0.92 0.30 0.32 1.702003.2 -0.69 -0.74 -0.69 -3.55 -1.82 -0.21 1.00 -0.80 -0.96 0.30 0.31 1.862003.3 -0.67 -0.78 -0.68 -3.42 -1.88 -0.23 1.00 -0.85 -1.00 0.31 0.29 1.982003.4 -0.64 -0.83 -0.67 -3.31 -1.92 -0.24 1.00 -0.89 -1.02 0.32 0.28 2.122004.1 -0.60 -0.87 -0.65 -3.23 -1.94 -0.29 1.00 -0.94 -1.10 0.33 0.26 2.242004.2 -0.56 -0.91 -0.63 -3.03 -1.94 -0.31 1.00 -0.97 -1.14 0.35 0.23 2.372004.3 -0.53 -0.94 -0.61 -2.85 -1.92 -0.34 1.00 -1.00 -1.15 0.34 0.21 2.492004.4 -0.50 -0.97 -0.58 -2.67 -1.88 -0.37 1.00 -1.03 -1.18 0.34 0.19 2.612005.1 -0.47 -0.99 -0.55 -2.46 -1.83 -0.44 1.00 -1.05 -1.24 0.33 0.17 2.722005.2 -0.43 -1.01 -0.52 -2.24 -1.76 -0.47 1.00 -1.07 -1.27 0.32 0.15 2.852005.3 -0.40 -1.02 -0.49 -2.05 -1.68 -0.52 1.00 -1.09 -1.30 0.31 0.14 2.952005.4 -0.37 -1.04 -0.46 -1.86 -1.60 -0.55 1.00 -1.10 -1.33 0.30 0.12 3.08



3.5 CG Increase

This experiment shows that wealth effects from stock market changes are fairlylarge in the model. The experiment is an increase in CG of 10 percent of nominalGDP (40 percent at an annual rate) in 2000:1. Table 3.5 presents selected resultsfor the United States from this experiment. If you use the MCH model for thisexperiment, you will duplicate the results in this table.



3. Click “Examine the results without solving the model.” List the value ofGDP for 2000:1. Take 40.0 percent of this value, and call them the “CGincrease.” Then return to the main menu page.


5. Click “Drop or add equations” and for the United States drop the CG equation(equation 25).

6. Click “Change exogenous variables” and ask to change CG for the UnitedStates. Type in the CG increase for 2000:1. Leave the other quarters thesame. Be sure to save the changes once you are done.


3.5. CG INCREASE 29




2000.1 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.002000.2 0.06 0.01 0.11 0.04 0.04 0.00 0.02 0.01 0.00 0.00 -0.03 -0.032000.3 0.17 0.03 0.20 0.40 0.13 0.00 0.07 0.02 -0.01 -0.02 -0.07 -0.092000.4 0.28 0.06 0.28 0.78 0.26 -0.01 0.12 0.05 -0.01 -0.03 -0.12 -0.152001.1 0.37 0.09 0.34 1.16 0.41 -0.01 0.17 0.07 -0.03 -0.05 -0.18 -0.212001.2 0.40 0.14 0.38 1.25 0.56 -0.02 0.21 0.11 -0.04 -0.06 -0.21 -0.262001.3 0.41 0.17 0.41 1.30 0.70 -0.02 0.24 0.14 -0.04 -0.08 -0.24 -0.292001.4 0.39 0.20 0.43 1.32 0.81 -0.03 0.25 0.16 -0.04 -0.09 -0.24 -0.312002.1 0.36 0.23 0.44 1.28 0.90 -0.03 0.26 0.19 -0.04 -0.10 -0.25 -0.322002.2 0.32 0.26 0.43 1.15 0.97 -0.04 0.26 0.21 -0.03 -0.11 -0.24 -0.322002.3 0.27 0.28 0.43 1.00 1.01 -0.04 0.26 0.23 -0.02 -0.12 -0.23 -0.322002.4 0.23 0.30 0.42 0.83 1.03 -0.04 0.25 0.25 -0.01 -0.12 -0.20 -0.312003.1 0.20 0.32 0.41 0.66 1.03 -0.04 0.24 0.27 0.02 -0.12 -0.19 -0.302003.2 0.17 0.33 0.39 0.49 1.02 -0.04 0.24 0.28 0.03 -0.12 -0.18 -0.292003.3 0.14 0.34 0.37 0.32 0.99 -0.04 0.23 0.29 0.05 -0.11 -0.16 -0.272003.4 0.11 0.35 0.35 0.16 0.94 -0.03 0.21 0.30 0.07 -0.11 -0.15 -0.252004.1 0.08 0.36 0.33 0.02 0.89 -0.02 0.21 0.31 0.10 -0.11 -0.14 -0.232004.2 0.05 0.36 0.30 -0.11 0.83 -0.02 0.19 0.32 0.12 -0.10 -0.12 -0.212004.3 0.03 0.37 0.28 -0.23 0.76 -0.01 0.18 0.32 0.13 -0.10 -0.11 -0.182004.4 0.01 0.37 0.26 -0.32 0.69 -0.01 0.17 0.32 0.14 -0.08 -0.10 -0.162005.1 0.00 0.37 0.24 -0.39 0.63 0.00 0.16 0.33 0.17 -0.08 -0.09 -0.142005.2 -0.01 0.37 0.22 -0.45 0.56 0.01 0.15 0.33 0.18 -0.07 -0.09 -0.122005.3 -0.01 0.37 0.21 -0.50 0.50 0.01 0.15 0.33 0.19 -0.06 -0.09 -0.102005.4 -0.02 0.37 0.19 -0.55 0.44 0.02 0.14 0.33 0.20 -0.05 -0.08 -0.08



3.6 US Price Shock, RS exogenous

This experiment shows that positive price shocks are contractionary even if the Fedkeeps the nominal interest rate unchanged. This feature has important implicationsfor monetary policy. Table 3.6 presents selected results for the United States fromthis experiment. If you use the MCH model for this experiment, you will duplicatethe results in this table.





5. Click “Modify equation coefficients” and ask to modify equation 10, the PFequation, for the United States. Then add .005 to the fifth coefficient in theequation (the constant term). Be sure to save the changes once you are done.


3.6. US PRICE SHOCK, RS EXOGENOUS 31




2000.1 -0.02 0.51 -0.01 -0.02 0.04 -0.05 0.00 0.45 0.10 0.07 0.00 -0.182000.2 -0.05 0.98 -0.04 -0.07 0.09 -0.09 0.00 0.87 0.15 0.13 0.02 -0.332000.3 -0.11 1.43 -0.09 -0.13 0.15 -0.14 0.00 1.26 0.20 0.19 0.04 -0.462000.4 -0.19 1.85 -0.15 -0.19 0.21 -0.19 0.00 1.63 0.27 0.25 0.07 -0.582001.1 -0.27 2.24 -0.22 -0.28 0.24 -0.31 0.00 2.01 0.49 0.25 0.11 -0.682001.2 -0.36 2.61 -0.31 -0.39 0.26 -0.37 0.00 2.34 0.57 0.27 0.15 -0.742001.3 -0.45 2.95 -0.40 -0.54 0.25 -0.44 0.00 2.65 0.67 0.30 0.19 -0.812001.4 -0.55 3.27 -0.49 -0.72 0.22 -0.51 0.00 2.94 0.76 0.31 0.24 -0.872002.1 -0.64 3.57 -0.58 -0.94 0.16 -0.62 0.00 3.23 1.02 0.32 0.29 -0.902002.2 -0.73 3.83 -0.66 -1.16 0.08 -0.70 0.00 3.48 1.11 0.38 0.34 -0.922002.3 -0.81 4.09 -0.74 -1.37 -0.01 -0.75 0.00 3.71 1.19 0.42 0.39 -0.932002.4 -0.88 4.32 -0.82 -1.59 -0.10 -0.79 0.00 3.92 1.28 0.47 0.42 -0.952003.1 -0.95 4.55 -0.90 -1.80 -0.22 -0.92 0.00 4.16 1.52 0.48 0.46 -0.942003.2 -1.00 4.76 -0.96 -1.96 -0.34 -0.97 0.00 4.35 1.61 0.51 0.50 -0.962003.3 -1.05 4.95 -1.02 -2.08 -0.46 -1.01 0.00 4.53 1.71 0.55 0.51 -0.952003.4 -1.08 5.13 -1.07 -2.19 -0.56 -1.08 0.00 4.70 1.78 0.59 0.54 -0.952004.1 -1.12 5.31 -1.11 -2.32 -0.67 -1.18 0.00 4.88 1.98 0.61 0.56 -0.932004.2 -1.14 5.47 -1.14 -2.36 -0.76 -1.18 0.00 5.03 2.06 0.67 0.57 -0.922004.3 -1.15 5.63 -1.16 -2.40 -0.84 -1.25 0.00 5.18 2.10 0.72 0.57 -0.932004.4 -1.16 5.78 -1.18 -2.41 -0.89 -1.28 0.00 5.31 2.13 0.80 0.57 -0.922005.1 -1.16 5.93 -1.19 -2.39 -0.94 -1.32 0.00 5.47 2.31 0.78 0.57 -0.912005.2 -1.16 6.07 -1.20 -2.36 -0.98 -1.35 0.00 5.60 2.36 0.82 0.58 -0.912005.3 -1.16 6.21 -1.20 -2.34 -1.00 -1.41 0.00 5.72 2.41 0.86 0.58 -0.902005.4 -1.17 6.33 -1.21 -2.31 -1.01 -1.45 0.00 5.84 2.45 0.92 0.57 -0.90



3.7 US Dollar Depreciation

This experiment shows that a depreciation of the dollar is inflationary and contrac-tionary. It is contractionary because the negative effects from the increase in pricesmore than offset the positive effects from a decrease in imports and increase in ex-ports. Table 3.7 presents selected results for the United States from this experiment.If you use the MCH model for this experiment, you will duplicate the results in thistable.




4. Click “Drop or add equations” and drop the exchange rate equation (E equa-tion) for JA, AS, KO, NZ, PH, and EU. Also, drop the exchange rate equation(H equation) for ST, UK, DE, NO, and SW.

5. Click “Change exogenous variables” and ask one at a time to change thevalues of E for CA, JA, AS, KO, NZ, PH, EU, SO, SA, VE, CO, JO, SY, ID,MA, PA, TH, CH, AR, BR, CE, ME, and PE. Ask to multiply each value by0.9. Be sure to save the changes once you are done.


3.7. US DOLLAR DEPRECIATION 33




2000.1 -0.03 0.40 -0.27 -0.30 -0.83 0.62 0.44 1.45 8.32 -1.19 0.00 -0.102000.2 -0.13 0.68 -0.56 -0.66 -1.58 0.95 0.57 1.69 8.23 -0.96 0.03 -0.112000.3 -0.22 0.94 -0.79 -0.98 -2.23 1.20 0.46 1.90 8.14 -0.73 0.06 -0.102000.4 -0.30 1.17 -0.96 -1.22 -2.80 1.39 0.37 2.10 8.10 -0.56 0.10 -0.082001.1 -0.33 1.38 -1.10 -1.38 -3.28 1.70 0.37 2.28 8.13 -0.36 0.13 -0.072001.2 -0.35 1.57 -1.20 -1.46 -3.68 1.83 0.38 2.44 8.04 -0.19 0.15 -0.052001.3 -0.38 1.76 -1.27 -1.61 -4.01 1.92 0.36 2.61 8.02 -0.08 0.17 -0.022001.4 -0.40 1.93 -1.31 -1.75 -4.27 2.00 0.33 2.75 7.92 0.02 0.18 0.012002.1 -0.39 2.09 -1.36 -1.83 -4.46 2.04 0.32 2.86 7.81 0.08 0.19 0.032002.2 -0.36 2.23 -1.39 -1.84 -4.61 2.09 0.32 2.98 7.69 0.14 0.19 0.042002.3 -0.33 2.37 -1.40 -1.82 -4.71 2.09 0.32 3.10 7.64 0.20 0.18 0.062002.4 -0.32 2.49 -1.42 -1.78 -4.78 2.03 0.31 3.19 7.51 0.23 0.17 0.082003.1 -0.32 2.60 -1.42 -1.72 -4.79 1.98 0.29 3.26 7.28 0.29 0.17 0.122003.2 -0.31 2.70 -1.41 -1.62 -4.78 1.97 0.26 3.34 7.22 0.31 0.17 0.132003.3 -0.30 2.79 -1.39 -1.50 -4.74 1.90 0.25 3.41 7.12 0.34 0.16 0.162003.4 -0.27 2.87 -1.37 -1.40 -4.68 1.79 0.25 3.47 7.00 0.34 0.15 0.172004.1 -0.24 2.94 -1.34 -1.30 -4.59 1.67 0.24 3.51 6.80 0.39 0.14 0.192004.2 -0.20 3.01 -1.31 -1.16 -4.49 1.58 0.23 3.55 6.65 0.40 0.12 0.212004.3 -0.17 3.07 -1.28 -1.03 -4.37 1.55 0.22 3.59 6.57 0.42 0.10 0.222004.4 -0.16 3.13 -1.25 -0.91 -4.25 1.42 0.21 3.63 6.48 0.38 0.09 0.232005.1 -0.16 3.17 -1.21 -0.79 -4.11 1.22 0.20 3.65 6.29 0.39 0.08 0.262005.2 -0.15 3.21 -1.17 -0.69 -3.97 1.13 0.18 3.67 6.22 0.38 0.08 0.282005.3 -0.15 3.25 -1.13 -0.60 -3.82 1.05 0.15 3.69 6.07 0.39 0.08 0.312005.4 -0.14 3.28 -1.10 -0.52 -3.67 0.94 0.13 3.70 5.94 0.35 0.08 0.32


Chapter 4

Estimating How the MacroeconomyWorks

This chapter presents some of the experiments in Fair (2004), Estimating How theMacroeconomy Works. If you do the following experiments using the MCA modelon the website, you will exactly duplicate the results in this book. This will not betrue for the MCH model since the MCA and MCH models differ somewhat.

35

36 CHAPTER 4. ESTIMATING HOW THE MACROECONOMY WORKS

4.1 Testing for a New Economy in the 1990s (Chapter 6)

This section explains how to perform the “no stock market boom” experiment inChapter 6. It assumes that Chapter 6 has been read. Table 4.1 presents selectedresults for the United States. If you use the MCH model for this experiment, youwill duplicate the results in this table.




4. Click “Drop or add equations” and for the United States drop the CG equation(equation 25).

5. Click “Change exogenous variables” and ask to change CG for the UnitedStates. Ask to replace each existing value with 131.2. Hit the enter key andthen be sure to save the changes once you are done.


4.1. TESTING FOR A NEW ECONOMY IN THE 1990S (CHAPTER 6) 37




1995.1 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.001995.2 -0.04 -0.01 -0.07 -0.03 -0.03 0.00 -0.02 0.00 0.00 0.00 0.02 0.021995.3 -0.14 -0.02 -0.19 -0.31 -0.11 0.00 -0.06 -0.02 0.01 0.01 0.06 0.091995.4 -0.31 -0.08 -0.37 -0.81 -0.27 0.01 -0.14 -0.06 0.02 0.02 0.14 0.221996.1 -0.55 -0.16 -0.60 -1.59 -0.54 0.01 -0.25 -0.12 0.04 0.05 0.26 0.401996.2 -0.80 -0.27 -0.83 -2.40 -0.89 0.02 -0.39 -0.22 0.06 0.08 0.40 0.621996.3 -1.02 -0.36 -1.03 -3.18 -1.30 0.04 -0.54 -0.29 0.08 0.12 0.54 0.821996.4 -1.18 -0.52 -1.20 -3.80 -1.74 0.06 -0.67 -0.43 0.09 0.16 0.66 1.021997.1 -1.28 -0.66 -1.37 -4.15 -2.18 0.08 -0.79 -0.54 0.11 0.21 0.77 1.181997.2 -1.32 -0.75 -1.48 -4.36 -2.59 0.10 -0.89 -0.62 0.11 0.25 0.85 1.271997.3 -1.40 -0.90 -1.75 -4.35 -3.02 0.13 -1.01 -0.75 0.10 0.30 0.95 1.411997.4 -1.60 -1.07 -2.08 -4.91 -3.53 0.15 -1.15 -0.89 0.08 0.35 1.07 1.611998.1 -1.82 -1.25 -2.35 -5.57 -4.08 0.17 -1.31 -1.05 0.06 0.41 1.19 1.841998.2 -2.10 -1.46 -2.73 -6.24 -4.71 0.20 -1.49 -1.23 0.04 0.47 1.36 2.131998.3 -2.36 -1.68 -3.02 -6.98 -5.37 0.24 -1.70 -1.41 0.03 0.53 1.53 2.371998.4 -2.34 -1.89 -2.96 -7.19 -5.90 0.27 -1.83 -1.59 -0.01 0.59 1.61 2.481999.1 -2.32 -2.10 -3.22 -6.73 -6.40 0.27 -1.96 -1.75 0.04 0.63 1.73 2.571999.2 -2.29 -2.29 -3.41 -6.46 -6.86 0.30 -2.04 -1.92 -0.01 0.71 1.74 2.661999.3 -2.31 -2.49 -3.65 -6.21 -7.30 0.34 -2.11 -2.10 -0.06 0.78 1.79 2.741999.4 -2.34 -2.69 -3.70 -6.74 -7.71 0.34 -2.21 -2.28 -0.15 0.85 1.84 2.802000.1 -2.42 -2.89 -4.04 -6.20 -8.12 0.34 -2.30 -2.47 -0.30 0.96 1.88 2.942000.2 -2.63 -3.11 -4.41 -6.60 -8.60 0.37 -2.44 -2.67 -0.39 1.04 2.00 3.072000.3 -2.74 -3.34 -4.53 -6.99 -9.06 0.39 -2.58 -2.88 -0.48 1.16 2.09 3.212000.4 -2.76 -3.58 -4.56 -7.20 -9.47 0.42 -2.77 -3.09 -0.57 1.19 2.27 3.332001.1 -2.51 -3.76 -4.33 -6.33 -9.66 0.41 -2.79 -3.25 -0.72 1.18 2.21 3.342001.2 -1.95 -3.91 -3.86 -4.42 -9.54 0.42 -2.66 -3.40 -0.86 1.10 2.02 3.082001.3 -1.35 -3.97 -3.53 -2.01 -9.19 0.38 -2.46 -3.46 -0.92 0.98 1.79 2.822001.4 -0.66 -4.01 -2.95 0.49 -8.56 0.40 -1.91 -3.51 -1.02 0.85 1.47 2.472002.1 -0.06 -4.01 -2.63 3.29 -7.77 0.32 -1.65 -3.56 -1.29 0.77 1.23 2.092002.2 0.33 -3.96 -2.34 4.95 -6.93 0.28 -1.55 -3.52 -1.37 0.69 0.98 1.762002.3 0.68 -3.91 -1.89 6.66 -6.00 0.24 -1.40 -3.49 -1.44 0.56 0.78 1.432002.4 1.08 -3.80 -1.28 8.14 -4.94 0.18 -1.08 -3.41 -1.53 0.42 0.46 1.06



4.2 Evaluating a ‘Modern’ View of Macroeconomics(Chapter 7)

This section explains how to perform the inflation shock experiment in Chapter 7.It assumes that Chapter 7 has been read. This experiment is the same as experiment3.6 except for a different prediction period. Table 4.2 presents selected results forthe United States. If you use the MCH model for this experiment, you will duplicatethe results in this table.





5. Click “Modify equation coefficients” and ask to modify equation 10, the PFequation, for the United States. Then add .005 to the third coefficient in theequation (the constant term). Be sure to save the changes once you are done.


4.2. EVALUATING A ‘MODERN’ VIEW OF MACROECONOMICS (CHAPTER 7)39




1994.1 -0.01 0.51 -0.01 -0.03 0.03 -0.04 0.00 0.45 0.09 0.05 0.00 -0.221994.2 -0.05 0.98 -0.04 -0.10 0.09 -0.08 0.00 0.87 0.14 0.10 0.01 -0.421994.3 -0.11 1.42 -0.09 -0.17 0.15 -0.12 0.00 1.26 0.20 0.15 0.03 -0.601994.4 -0.18 1.84 -0.16 -0.25 0.20 -0.17 0.00 1.63 0.27 0.19 0.06 -0.751995.1 -0.26 2.23 -0.23 -0.35 0.23 -0.26 0.00 2.00 0.48 0.21 0.10 -0.881995.2 -0.34 2.59 -0.31 -0.46 0.24 -0.30 0.00 2.32 0.57 0.24 0.14 -1.011995.3 -0.43 2.91 -0.40 -0.62 0.23 -0.35 0.00 2.61 0.66 0.27 0.18 -1.101995.4 -0.52 3.23 -0.49 -0.80 0.20 -0.41 0.00 2.90 0.76 0.29 0.23 -1.171996.1 -0.61 3.53 -0.57 -1.01 0.14 -0.51 0.00 3.20 1.00 0.30 0.27 -1.241996.2 -0.69 3.80 -0.66 -1.20 0.07 -0.55 0.00 3.45 1.09 0.33 0.32 -1.291996.3 -0.77 4.06 -0.74 -1.42 -0.02 -0.61 0.00 3.69 1.19 0.37 0.37 -1.341996.4 -0.85 4.28 -0.82 -1.64 -0.12 -0.66 0.00 3.89 1.29 0.40 0.41 -1.351997.1 -0.92 4.50 -0.90 -1.86 -0.24 -0.73 0.00 4.12 1.56 0.40 0.44 -1.361997.2 -0.99 4.72 -0.98 -2.05 -0.37 -0.79 0.00 4.33 1.66 0.43 0.48 -1.381997.3 -1.04 4.91 -1.04 -2.20 -0.50 -0.84 0.00 4.51 1.76 0.46 0.52 -1.381997.4 -1.09 5.09 -1.10 -2.38 -0.62 -0.90 0.00 4.68 1.86 0.49 0.54 -1.371998.1 -1.14 5.27 -1.16 -2.51 -0.76 -0.99 0.00 4.87 2.15 0.48 0.56 -1.361998.2 -1.18 5.44 -1.21 -2.60 -0.89 -1.03 0.00 5.04 2.22 0.51 0.57 -1.361998.3 -1.21 5.61 -1.26 -2.70 -1.01 -1.05 0.00 5.19 2.33 0.54 0.58 -1.351998.4 -1.24 5.76 -1.30 -2.76 -1.12 -1.08 0.00 5.34 2.42 0.57 0.59 -1.35



4.3 Estimated European Inflation Costs from Expansion-ary Policies (Chapter 8)

This section explains how to perform the German monetary policy experiment inChapter 8. It assumes that Chapter 8 has been read. Table 4.3a presents selectedresults for the United States, and Table 4.3b presents selected results for Germany.If you use the MCH model for this experiment, you will duplicate the results inthese tables.

This is a nice example for learning some of the features of the MCH model andfor learning how to work with it. Once you have mastered this experiment, youmay want to perform others to examine what else macro policies might have donein the 1980s to reduce European unemployment and at what price level and inflationcosts.




4. Click “Drop or add equations” and for the Germany drop the RS equation(equation 7).

5. Click “Change exogenous variables” and ask to change GERSA for Ger-many. (NOTE: This isGERSA, notGERS. See the discussion in Chapter 2,Section 2.5, of this workbook.) Then add -1.0 for 19821-19834, add -.75 for19841-19854, add -.5 for 19861-19874, and add -.25 for 19881-19904. Besure to save the changes once you are done.


4.3. ESTIMATED EUROPEAN INFLATION COSTS FROM EXPANSIONARY POLICIES (CHAPTER 8)41

Table 4.3aResults for the United States



1982.1 0.00 -0.01 0.00 0.01 0.02 -0.01 -0.01 -0.05 -0.16 0.01 0.00 0.001982.2 0.00 -0.02 0.01 0.02 0.04 -0.02 -0.01 -0.07 -0.24 0.01 0.00 0.001982.3 0.01 -0.03 0.02 0.03 0.06 -0.04 -0.02 -0.10 -0.31 0.02 0.00 0.001982.4 0.01 -0.04 0.02 0.06 0.09 -0.05 -0.02 -0.12 -0.37 0.01 0.00 0.001983.1 0.02 -0.06 0.03 0.08 0.14 -0.08 -0.02 -0.18 -0.55 0.02 -0.01 0.001983.2 0.02 -0.08 0.04 0.10 0.18 -0.08 -0.03 -0.21 -0.61 0.02 -0.01 0.001983.3 0.03 -0.09 0.05 0.13 0.22 -0.09 -0.03 -0.24 -0.65 0.02 -0.01 0.001983.4 0.04 -0.11 0.06 0.15 0.26 -0.10 -0.03 -0.26 -0.70 0.02 -0.02 -0.011984.1 0.04 -0.14 0.07 0.17 0.30 -0.10 -0.03 -0.30 -0.81 0.03 -0.02 -0.011984.2 0.05 -0.15 0.08 0.19 0.34 -0.09 -0.03 -0.31 -0.81 0.02 -0.02 -0.011984.3 0.05 -0.17 0.09 0.21 0.38 -0.10 -0.03 -0.34 -0.85 0.03 -0.03 -0.021984.4 0.06 -0.19 0.10 0.23 0.42 -0.10 -0.03 -0.35 -0.88 0.02 -0.03 -0.021985.1 0.06 -0.21 0.11 0.25 0.45 -0.09 -0.03 -0.38 -0.96 0.03 -0.03 -0.021985.2 0.07 -0.23 0.11 0.26 0.49 -0.08 -0.03 -0.41 -0.99 0.03 -0.03 -0.031985.3 0.07 -0.25 0.12 0.28 0.52 -0.07 -0.03 -0.43 -1.03 0.02 -0.03 -0.031985.4 0.08 -0.27 0.13 0.29 0.55 -0.07 -0.03 -0.45 -1.02 0.02 -0.04 -0.041986.1 0.08 -0.29 0.13 0.30 0.57 -0.04 -0.02 -0.47 -1.06 0.03 -0.04 -0.041986.2 0.08 -0.31 0.14 0.30 0.59 -0.03 -0.02 -0.48 -1.08 0.02 -0.04 -0.051986.3 0.08 -0.33 0.14 0.31 0.61 -0.02 -0.02 -0.50 -1.07 0.02 -0.04 -0.051986.4 0.08 -0.34 0.15 0.30 0.62 0.00 -0.02 -0.51 -1.07 0.02 -0.04 -0.051987.1 0.09 -0.36 0.15 0.31 0.63 0.02 -0.02 -0.52 -1.05 0.01 -0.04 -0.061987.2 0.08 -0.37 0.15 0.30 0.63 0.03 -0.02 -0.53 -1.03 0.01 -0.04 -0.061987.3 0.08 -0.38 0.15 0.28 0.63 0.03 -0.01 -0.53 -1.01 0.00 -0.04 -0.071987.4 0.08 -0.39 0.15 0.27 0.62 0.05 -0.01 -0.54 -1.01 0.01 -0.04 -0.071988.1 0.08 -0.40 0.14 0.26 0.61 0.07 -0.01 -0.53 -0.93 -0.01 -0.04 -0.071988.2 0.08 -0.40 0.14 0.24 0.60 0.07 -0.01 -0.54 -0.92 0.00 -0.04 -0.071988.3 0.08 -0.41 0.14 0.23 0.59 0.09 -0.01 -0.53 -0.90 0.00 -0.04 -0.081988.4 0.08 -0.41 0.14 0.21 0.57 0.10 0.00 -0.53 -0.88 0.00 -0.03 -0.081989.1 0.07 -0.42 0.14 0.20 0.55 0.11 0.00 -0.53 -0.85 -0.01 -0.03 -0.081989.2 0.07 -0.42 0.13 0.18 0.53 0.10 0.00 -0.53 -0.82 -0.01 -0.03 -0.091989.3 0.07 -0.42 0.13 0.16 0.51 0.11 0.00 -0.52 -0.80 -0.01 -0.03 -0.091989.4 0.06 -0.42 0.12 0.14 0.49 0.11 0.00 -0.52 -0.78 -0.01 -0.03 -0.091990.1 0.06 -0.42 0.12 0.12 0.47 0.11 0.00 -0.52 -0.76 -0.01 -0.02 -0.091990.2 0.06 -0.43 0.12 0.10 0.45 0.12 0.00 -0.52 -0.76 0.00 -0.02 -0.091990.3 0.06 -0.43 0.11 0.08 0.43 0.12 0.00 -0.52 -0.74 -0.01 -0.02 -0.101990.4 0.05 -0.43 0.11 0.06 0.41 0.13 0.01 -0.51 -0.71 -0.01 -0.02 -0.10


4.3. ESTIMATED EUROPEAN INFLATION COSTS FROM EXPANSIONARY POLICIES (CHAPTER 8)43

Table 4.3bResults for Germany


qtr Y PY C I IM EX RS E PX PM SPCT UR

1982.1 0.02 0.00 0.00 0.09 0.00 -0.01 -1.00 0.39 0.03 0.08 -0.01 -0.011982.2 0.04 0.00 0.01 0.16 -0.01 0.01 -1.00 0.75 0.08 0.30 -0.05 -0.011982.3 0.06 0.01 0.02 0.22 -0.03 0.03 -1.00 1.08 0.14 0.50 -0.08 -0.021982.4 0.09 0.02 0.03 0.28 -0.05 0.06 -1.00 1.39 0.19 0.71 -0.11 -0.041983.1 0.11 0.03 0.05 0.34 -0.07 0.04 -1.00 1.68 0.20 0.64 -0.08 -0.051983.2 0.14 0.04 0.06 0.40 -0.09 0.07 -1.00 1.94 0.25 0.79 -0.10 -0.061983.3 0.17 0.06 0.08 0.46 -0.12 0.10 -1.00 2.19 0.30 0.97 -0.12 -0.081983.4 0.21 0.08 0.11 0.52 -0.15 0.14 -1.00 2.42 0.36 1.10 -0.13 -0.101984.1 0.23 0.10 0.13 0.55 -0.17 0.14 -0.75 2.53 0.37 1.07 -0.11 -0.111984.2 0.26 0.13 0.16 0.59 -0.20 0.17 -0.75 2.64 0.41 1.15 -0.10 -0.131984.3 0.30 0.16 0.18 0.63 -0.23 0.20 -0.75 2.74 0.45 1.22 -0.10 -0.161984.4 0.34 0.19 0.21 0.66 -0.27 0.23 -0.75 2.83 0.49 1.28 -0.08 -0.181985.1 0.36 0.22 0.24 0.70 -0.29 0.24 -0.75 2.92 0.52 1.29 -0.07 -0.201985.2 0.40 0.25 0.27 0.74 -0.32 0.28 -0.75 3.01 0.56 1.35 -0.06 -0.221985.3 0.44 0.29 0.30 0.77 -0.35 0.31 -0.75 3.10 0.59 1.38 -0.04 -0.241985.4 0.47 0.33 0.33 0.81 -0.38 0.33 -0.75 3.19 0.64 1.44 -0.03 -0.271986.1 0.51 0.38 0.36 0.82 -0.41 0.36 -0.50 3.17 0.67 1.41 0.01 -0.291986.2 0.55 0.42 0.40 0.84 -0.43 0.43 -0.50 3.16 0.70 1.41 0.03 -0.321986.3 0.58 0.47 0.43 0.86 -0.46 0.44 -0.50 3.15 0.74 1.41 0.05 -0.351986.4 0.61 0.52 0.46 0.88 -0.48 0.46 -0.50 3.16 0.78 1.42 0.06 -0.371987.1 0.64 0.58 0.50 0.90 -0.50 0.48 -0.50 3.17 0.83 1.47 0.07 -0.401987.2 0.68 0.63 0.53 0.93 -0.51 0.49 -0.50 3.18 0.88 1.49 0.08 -0.431987.3 0.71 0.69 0.56 0.95 -0.53 0.51 -0.50 3.21 0.93 1.54 0.09 -0.451987.4 0.74 0.75 0.59 0.97 -0.55 0.53 -0.50 3.24 0.99 1.57 0.10 -0.481988.1 0.75 0.82 0.62 0.96 -0.56 0.54 -0.25 3.16 1.04 1.61 0.10 -0.501988.2 0.78 0.88 0.65 0.97 -0.58 0.54 -0.25 3.10 1.09 1.59 0.13 -0.521988.3 0.81 0.95 0.68 0.97 -0.59 0.55 -0.25 3.06 1.14 1.60 0.15 -0.551988.4 0.82 1.02 0.71 0.97 -0.59 0.54 -0.25 3.02 1.19 1.59 0.17 -0.571989.1 0.84 1.09 0.73 0.98 -0.60 0.53 -0.25 2.99 1.25 1.64 0.17 -0.591989.2 0.85 1.16 0.75 0.98 -0.61 0.52 -0.25 2.97 1.31 1.65 0.18 -0.611989.3 0.87 1.23 0.77 0.98 -0.61 0.51 -0.25 2.96 1.37 1.67 0.19 -0.641989.4 0.88 1.30 0.79 0.98 -0.61 0.48 -0.25 2.96 1.43 1.68 0.19 -0.651990.1 0.90 1.38 0.81 0.99 -0.61 0.49 -0.25 2.96 1.49 1.71 0.20 -0.671990.2 0.90 1.45 0.83 0.99 -0.61 0.46 -0.25 2.97 1.56 1.75 0.20 -0.691990.3 0.91 1.53 0.84 0.99 -0.61 0.40 -0.25 2.99 1.62 1.79 0.21 -0.701990.4 0.90 1.61 0.85 0.99 -0.60 0.35 -0.25 3.01 1.69 1.82 0.22 -0.71

• percentage deviations for all but RS, SPCT, UR, and DEBT; absolute deviations for these.• Y = real GDP, PY = GDP deflator, C = total consumption, I = total fixed investment,IM = total imports, EX = total exports, RS = three-month Treasury bill rate,E = exchange rate relative to U.S. dollar,PX = export price index, PM = import price index, SPCT = current account as apercent of GDP, UR = unemployment rate.


4.4 Evaluating Policy Rules (Chapter 11)

This section explains how to perform the interest rate experiment in Table 11.1 inChapter 11. This experiment is the same as experiment 3.4 except for a differentprediction period and a decrease in RS rather than an increase. It assumes thatChapter 11 has been read. Table 4.4 presents selected results for the United States.If you use the MCH model for this experiment, you will duplicate the results in thistable.





5. Click “Change exogenous variables” and ask to change RS for the UnitedStates. Then add -1.0 to all the values. Be sure to save the changes once youare done.


4.4. EVALUATING POLICY RULES (CHAPTER 11) 45




1994.1 0.05 0.02 0.08 0.00 0.01 0.01 -1.00 0.05 0.20 -0.02 -0.01 -0.061994.2 0.14 0.04 0.17 0.33 0.07 0.02 -1.00 0.09 0.28 -0.04 -0.04 -0.161994.3 0.25 0.08 0.24 0.81 0.16 0.03 -1.00 0.13 0.35 -0.05 -0.08 -0.291994.4 0.36 0.12 0.30 1.29 0.28 0.04 -1.00 0.18 0.39 -0.07 -0.13 -0.451995.1 0.44 0.18 0.35 1.76 0.42 0.06 -1.00 0.26 0.52 -0.09 -0.17 -0.611995.2 0.51 0.24 0.40 2.21 0.57 0.08 -1.00 0.31 0.56 -0.11 -0.21 -0.791995.3 0.56 0.33 0.43 2.56 0.73 0.08 -1.00 0.40 0.57 -0.12 -0.24 -0.971995.4 0.59 0.38 0.45 2.82 0.88 0.09 -1.00 0.44 0.60 -0.13 -0.26 -1.121996.1 0.60 0.44 0.47 2.98 1.02 0.11 -1.00 0.50 0.67 -0.15 -0.27 -1.291996.2 0.60 0.50 0.47 3.05 1.15 0.13 -1.00 0.55 0.69 -0.16 -0.28 -1.431996.3 0.59 0.55 0.47 3.10 1.25 0.13 -1.00 0.60 0.71 -0.17 -0.28 -1.581996.4 0.57 0.60 0.47 3.12 1.34 0.14 -1.00 0.65 0.74 -0.18 -0.27 -1.721997.1 0.54 0.64 0.46 3.10 1.40 0.17 -1.00 0.69 0.81 -0.19 -0.25 -1.861997.2 0.52 0.68 0.44 3.02 1.45 0.19 -1.00 0.73 0.84 -0.19 -0.24 -2.001997.3 0.49 0.72 0.42 2.88 1.47 0.20 -1.00 0.77 0.88 -0.20 -0.22 -2.121997.4 0.46 0.75 0.40 2.78 1.47 0.22 -1.00 0.80 0.90 -0.20 -0.20 -2.251998.1 0.43 0.78 0.38 2.61 1.45 0.27 -1.00 0.83 1.00 -0.20 -0.18 -2.391998.2 0.39 0.80 0.35 2.43 1.41 0.30 -1.00 0.86 1.03 -0.19 -0.15 -2.521998.3 0.37 0.82 0.32 2.26 1.36 0.33 -1.00 0.88 1.08 -0.18 -0.13 -2.631998.4 0.33 0.83 0.30 2.08 1.30 0.36 -1.00 0.90 1.12 -0.17 -0.12 -2.73


Chapter 5

“Policy Effects in the Post BoomU.S. Economy”

This chapter presents the seven experiments in Fair (2005), “Policy Effects in thePost Boom U.S. Economy.” If you do the following experiments using the MCBmodel on the website, you will exactly duplicate the results in this paper. This willnot be true for the MCH model since the MCB and MCH models differ somewhat.

47

48CHAPTER 5. “POLICY EFFECTS IN THE POST BOOM U.S. ECONOMY”

5.1 Experiment 1: No Tax Cuts

Table 5.1 presents selected results for the United States. If you use the MCH modelfor this experiment, you will duplicate the results in this table.




4. Click “Drop or add equations” and for the United States drop theCG equation(equation 25) and the RS equation (equation 30).

5. Click “Change exogenous variables” and ask to change D1G for the UnitedStates. Change the first quarter of the prediction period to be 20004 (not20001) and the last quarter of the prediction period to be 20043 (not 20044).Then ask to replace each existing value with the actual value of D1G in2000:3, which you can see from the page you are on. Hit the enter key andthen be sure to save the changes once you are done.


The model will be solved for the entire 2000:1–2004:4 period, but the periodof interest is only 2000:4–2004:3. You can ignore the first three quarters of 2000(there are no changes here anyway) and the last quarter of 2004.

5.1. EXPERIMENT 1: NO TAX CUTS 49




2000.4 0.01 0.00 0.02 0.03 0.01 0.00 0.00 0.00 0.00 0.00 0.00 0.012001.1 0.05 0.00 0.06 0.11 0.03 0.00 0.00 0.00 0.00 -0.01 -0.01 0.032001.2 0.09 0.01 0.10 0.19 0.08 0.00 0.00 0.01 0.00 -0.01 -0.02 0.062001.3 -0.19 0.00 -0.30 -0.54 -0.08 0.00 0.00 0.00 0.00 0.01 0.01 -0.192001.4 -0.31 -0.02 -0.32 -0.58 -0.22 0.00 0.00 -0.02 0.00 0.03 0.07 -0.162002.1 -0.64 -0.07 -0.75 -1.55 -0.54 0.00 0.00 -0.06 -0.02 0.07 0.15 -0.432002.2 -1.04 -0.14 -1.16 -2.50 -1.00 0.00 0.00 -0.12 -0.03 0.14 0.27 -0.682002.3 -1.40 -0.22 -1.53 -3.49 -1.56 0.01 0.00 -0.20 -0.05 0.22 0.41 -0.922002.4 -1.71 -0.32 -1.88 -4.49 -2.20 0.01 0.00 -0.29 -0.07 0.32 0.55 -1.182003.1 -1.97 -0.44 -2.20 -5.47 -2.88 -0.01 0.00 -0.40 -0.15 0.43 0.67 -1.472003.2 -2.18 -0.57 -2.49 -6.24 -3.58 0.00 0.00 -0.52 -0.19 0.52 0.78 -1.742003.3 -2.49 -0.72 -2.97 -7.25 -4.37 0.00 0.00 -0.65 -0.24 0.64 0.87 -2.172003.4 -2.70 -0.88 -3.28 -7.88 -5.15 0.00 0.00 -0.79 -0.30 0.77 0.97 -2.522004.1 -2.85 -1.05 -3.54 -8.58 -5.90 -0.06 0.00 -0.96 -0.47 0.92 1.04 -2.922004.2 -2.90 -1.21 -3.74 -8.81 -6.59 -0.07 0.00 -1.11 -0.56 1.07 1.07 -3.342004.3 -2.89 -1.36 -3.87 -8.92 -7.19 -0.08 0.00 -1.25 -0.64 1.19 1.06 -3.75



5.2 Experiment 2: No G Increase






5. Click “Examine the results without solving the model.” List the values ofCOG and Y S for 2000:1–2004:4. Compute COG/Y S for 2000:3, and callthis γ. For the quarters 2000:4–2004:3, compute γY S, and call these the“new values of COG.” Then return to the main menu page.

6. Click “Change exogenous variables” and ask to change COG for the UnitedStates. Then enter quarter by quarter the new values of COG for 2000:4–2004:3. (Make sure to save the changes once you are done.)



5.2. EXPERIMENT 2: NO G INCREASE 51




2000.4 0.01 0.00 0.00 0.01 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.002001.1 -0.07 0.00 0.00 -0.04 0.00 0.00 0.00 0.00 0.00 0.00 0.01 0.012001.2 -0.22 -0.01 -0.02 -0.18 -0.02 0.00 0.00 -0.01 0.00 0.00 0.06 0.022001.3 -0.34 -0.04 -0.04 -0.38 -0.06 0.00 0.00 -0.04 -0.01 0.00 0.11 0.032001.4 -0.48 -0.07 -0.07 -0.64 -0.12 0.01 0.00 -0.06 -0.01 0.01 0.16 0.042002.1 -0.65 -0.11 -0.11 -0.99 -0.21 0.01 0.00 -0.10 -0.03 0.02 0.23 0.052002.2 -0.87 -0.17 -0.16 -1.42 -0.32 0.02 0.00 -0.16 -0.04 0.03 0.32 0.052002.3 -1.05 -0.24 -0.22 -1.87 -0.47 0.02 0.00 -0.21 -0.05 0.04 0.40 0.032002.4 -1.23 -0.32 -0.28 -2.36 -0.64 0.03 0.00 -0.28 -0.06 0.06 0.48 0.012003.1 -1.27 -0.40 -0.34 -2.75 -0.83 0.04 0.00 -0.36 -0.11 0.09 0.54 -0.052003.2 -1.54 -0.50 -0.40 -3.17 -1.04 0.05 0.00 -0.45 -0.13 0.11 0.63 -0.062003.3 -1.65 -0.60 -0.47 -3.53 -1.26 0.06 0.00 -0.54 -0.16 0.13 0.68 -0.112003.4 -1.70 -0.70 -0.53 -3.80 -1.48 0.07 0.00 -0.63 -0.19 0.16 0.73 -0.172004.1 -1.76 -0.81 -0.58 -4.08 -1.69 0.07 0.00 -0.74 -0.27 0.20 0.77 -0.262004.2 -1.78 -0.92 -0.63 -4.21 -1.90 0.08 0.00 -0.84 -0.31 0.23 0.78 -0.352004.3 -1.86 -1.02 -0.67 -4.32 -2.09 0.09 0.00 -0.93 -0.35 0.26 0.79 -0.44



5.3 Experiment 3: No RS Decrease






5. Click “Change exogenous variables” and ask to change RS for the UnitedStates. Change the first quarter of the prediction period to be 20004 (not20001) and the last quarter to beo 20043 (not 20044). Then ask to replaceeach existing value with 6.017. (6.017 is the actual value of RS in 2000:3,which you can see from the page you are on.) Hit the enter key and then besure to save the changes once you are done.



5.3. EXPERIMENT 3: NO RS DECREASE 53




2000.4 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.002001.1 -0.06 -0.03 -0.11 -0.01 -0.01 -0.01 1.20 -0.08 -0.34 0.05 0.01 0.062001.2 -0.24 -0.06 -0.32 -0.37 -0.10 -0.04 2.36 -0.16 -0.55 0.09 0.06 0.192001.3 -0.52 -0.14 -0.58 -1.20 -0.30 -0.07 2.85 -0.26 -0.78 0.14 0.15 0.442001.4 -0.91 -0.24 -0.92 -2.44 -0.64 -0.12 4.11 -0.41 -1.09 0.20 0.28 0.822002.1 -1.36 -0.41 -1.26 -4.12 -1.07 -0.17 4.20 -0.68 -1.82 0.35 0.45 1.282002.2 -1.78 -0.61 -1.57 -5.95 -1.64 -0.23 4.30 -0.90 -2.03 0.45 0.63 1.822002.3 -2.14 -0.82 -1.83 -7.76 -2.31 -0.28 4.37 -1.12 -2.20 0.55 0.82 2.402002.4 -2.46 -1.06 -2.11 -9.54 -3.04 -0.34 4.68 -1.35 -2.37 0.66 0.97 3.052003.1 -2.72 -1.32 -2.34 -11.16 -3.78 -0.43 4.86 -1.68 -2.93 0.82 1.12 3.722003.2 -2.93 -1.60 -2.55 -12.39 -4.53 -0.50 4.97 -1.95 -3.12 0.90 1.24 4.492003.3 -3.08 -1.88 -2.73 -13.26 -5.25 -0.57 5.09 -2.22 -3.31 1.00 1.30 5.222003.4 -3.16 -2.17 -2.86 -14.07 -5.94 -0.60 5.10 -2.48 -3.42 1.11 1.36 6.002004.1 -3.18 -2.46 -2.94 -14.87 -6.55 -0.75 5.10 -2.80 -3.81 1.25 1.39 6.752004.2 -3.14 -2.72 -2.97 -14.95 -7.07 -0.80 4.94 -3.04 -3.94 1.37 1.36 7.492004.3 -3.03 -2.96 -2.92 -14.92 -7.49 -0.89 4.53 -3.26 -3.96 1.42 1.30 8.21



5.4 Experiment 4: No Stimulus—Experiments 1, 2, and 3


1. Combine experiments 1, 2, and 3, i.e., change D1G, COG, and RS.

5.4. EXPERIMENT 4: NO STIMULUS—EXPERIMENTS 1, 2, AND 3 55




2000.4 0.03 0.00 0.02 0.04 0.01 0.00 0.00 0.00 0.00 0.00 0.00 0.012001.1 -0.08 -0.02 -0.05 0.06 0.02 -0.01 1.20 -0.08 -0.34 0.05 0.02 0.102001.2 -0.37 -0.07 -0.24 -0.36 -0.04 -0.04 2.36 -0.16 -0.56 0.08 0.10 0.282001.3 -1.05 -0.18 -0.92 -2.13 -0.44 -0.07 2.85 -0.30 -0.79 0.15 0.26 0.282001.4 -1.70 -0.34 -1.31 -3.65 -0.97 -0.12 4.11 -0.50 -1.10 0.24 0.51 0.702002.1 -2.65 -0.58 -2.11 -6.68 -1.81 -0.17 4.20 -0.84 -1.87 0.44 0.83 0.912002.2 -3.67 -0.92 -2.88 -9.89 -2.96 -0.22 4.30 -1.18 -2.10 0.62 1.23 1.212002.3 -4.58 -1.29 -3.58 -13.16 -4.33 -0.25 4.37 -1.53 -2.29 0.81 1.65 1.542002.4 -5.41 -1.71 -4.28 -16.47 -5.88 -0.30 4.68 -1.93 -2.50 1.04 2.03 1.942003.1 -6.01 -2.18 -4.92 -19.54 -7.48 -0.39 4.86 -2.46 -3.20 1.33 2.38 2.302003.2 -6.74 -2.70 -5.53 -22.07 -9.14 -0.45 4.97 -2.94 -3.44 1.52 2.74 2.862003.3 -7.35 -3.23 -6.27 -24.42 -10.87 -0.50 5.09 -3.44 -3.71 1.76 2.98 3.162003.4 -7.74 -3.80 -6.82 -26.21 -12.57 -0.52 5.10 -3.95 -3.91 2.03 3.24 3.602004.1 -8.03 -4.39 -7.27 -28.12 -14.15 -0.73 5.10 -4.56 -4.57 2.36 3.42 3.932004.2 -8.11 -4.94 -7.60 -28.65 -15.57 -0.78 4.94 -5.07 -4.82 2.66 3.46 4.222004.3 -8.10 -5.47 -7.76 -28.91 -16.80 -0.86 4.53 -5.54 -4.96 2.85 3.44 4.49



5.5 Experiment 5: No Stimulus and No Stock Market De-cline


1. Do the set up for experiment 4 and then do the following extra steps.

2. Click “Change exogenous variables” and ask to change CG for the UnitedStates. Then type in the following values. (Make sure to save the changesonce you are done.)

CG2000.4 239.69682001.1 242.85302001.2 246.69692001.3 250.64562001.4 252.63292002.1 255.72202002.2 258.53232002.3 260.87542002.4 263.58242003.1 267.32472003.2 271.37912003.3 274.38962003.4 277.88642004.1 281.48732004.2 285.18762004.3 290.4179


(These are the exact values of CG used in the original paper.)

5.5. EXPERIMENT 5: NO STIMULUS AND NO STOCK MARKET DECLINE57




2000.4 0.03 0.00 0.02 0.04 0.01 0.00 0.00 0.00 0.00 0.00 0.00 0.012001.1 0.03 -0.01 0.16 0.13 0.10 -0.01 1.20 -0.07 -0.33 0.04 -0.04 0.042001.2 0.09 0.00 0.40 0.50 0.31 -0.04 2.36 -0.10 -0.54 0.03 -0.11 0.062001.3 -0.18 -0.01 -0.01 0.28 0.33 -0.07 2.85 -0.15 -0.76 0.06 -0.11 -0.172001.4 -0.29 -0.03 0.14 0.38 0.43 -0.13 4.11 -0.22 -1.05 0.07 -0.13 -0.102002.1 -0.78 -0.11 -0.35 -0.64 0.33 -0.18 4.20 -0.41 -1.74 0.17 -0.06 -0.242002.2 -1.57 -0.23 -0.87 -2.97 -0.07 -0.25 4.30 -0.55 -1.92 0.25 0.13 -0.262002.3 -2.24 -0.38 -1.16 -5.20 -0.63 -0.31 4.37 -0.72 -2.07 0.33 0.33 -0.282002.4 -2.71 -0.54 -1.23 -7.62 -1.26 -0.37 4.68 -0.89 -2.21 0.43 0.48 -0.332003.1 -2.91 -0.74 -1.46 -8.78 -1.88 -0.45 4.86 -1.14 -2.70 0.57 0.59 -0.452003.2 -3.30 -0.94 -1.68 -10.01 -2.54 -0.52 4.97 -1.35 -2.85 0.65 0.68 -0.472003.3 -3.83 -1.16 -2.34 -11.83 -3.42 -0.59 5.09 -1.56 -3.01 0.77 0.82 -0.622003.4 -4.43 -1.42 -2.88 -14.41 -4.49 -0.62 5.10 -1.80 -3.10 0.94 1.02 -0.542004.1 -5.15 -1.74 -3.57 -17.20 -5.74 -0.77 5.10 -2.14 -3.45 1.17 1.29 -0.412004.2 -5.88 -2.09 -4.26 -19.96 -7.19 -0.81 4.94 -2.45 -3.56 1.44 1.60 -0.182004.3 -6.53 -2.47 -4.79 -22.46 -8.70 -0.88 4.53 -2.79 -3.58 1.67 1.88 0.10



5.6 Experiment 6: No Stimulus and No Export Decline


1. Do the set up for experiment 4 and then do the following extra steps.

2. Click “Examine the results without solving the model.” List the values ofEX and Y S for 2000:1–2004:4. ComputeEX/Y S for 2000:3, and call thisγ. For the quarters 2000:4–2004:3, compute 1000(γY S − EX), and callthese the “USXS differences.” Then return to the main menu page.

3. Click “Change exogenous variables” and ask to changeUSXS for the UnitedStates. Type in the USXS differences quarter by quarter. (The new valuesare then the base values plus the USXS differences.) The relevant period is2000:4–2004:3 . (Make sure to save the changes once you are done.)


This experiment is designed to keep U.S. exports, EX , equal to γ times potentialoutput, Y S, where γ is the ratio of EX to Y S in 2000:3. In the original paper thiswas done by exogenous changes in other countries’ demands for U.S. goods. It is,however, easier just to change USXS in the manner above, which has been donehere.

5.6. EXPERIMENT 6: NO STIMULUS AND NO EXPORT DECLINE 59




2000.4 0.12 0.00 0.03 0.10 0.02 0.96 0.00 0.00 0.00 0.12 -0.02 -0.032001.1 0.19 -0.02 -0.03 0.29 0.06 2.30 1.20 -0.08 -0.34 0.34 -0.05 -0.022001.2 0.31 -0.06 -0.16 0.29 0.06 5.75 2.36 -0.15 -0.55 0.77 -0.09 -0.022001.3 0.32 -0.12 -0.75 -0.66 -0.18 11.31 2.85 -0.25 -0.78 1.42 -0.14 -0.362001.4 0.30 -0.17 -1.01 -1.03 -0.47 14.63 4.11 -0.35 -1.08 1.80 -0.15 -0.362002.1 -0.43 -0.26 -1.67 -2.96 -0.99 12.97 4.20 -0.56 -1.80 1.80 -0.02 -0.452002.2 -1.62 -0.39 -2.32 -5.45 -1.78 9.66 4.30 -0.71 -2.00 1.63 0.31 -0.342002.3 -2.70 -0.63 -2.95 -8.28 -2.82 8.95 4.37 -0.95 -2.16 1.72 0.72 -0.172002.4 -3.50 -0.94 -3.57 -11.23 -4.05 10.19 4.68 -1.24 -2.34 2.03 1.12 -0.022003.1 -3.99 -1.30 -4.16 -14.04 -5.37 11.37 4.86 -1.66 -2.93 2.41 1.45 0.082003.2 -4.64 -1.69 -4.71 -16.49 -6.78 11.73 4.97 -2.03 -3.13 2.62 1.77 0.332003.3 -5.38 -2.11 -5.43 -18.99 -8.33 9.78 5.09 -2.42 -3.35 2.63 2.05 0.442003.4 -6.19 -2.56 -5.99 -21.18 -9.90 5.78 5.10 -2.83 -3.50 2.47 2.40 0.812004.1 -6.88 -3.08 -6.48 -23.66 -11.45 3.77 5.10 -3.36 -4.04 2.57 2.73 1.142004.2 -7.28 -3.60 -6.89 -25.00 -12.93 3.00 4.94 -3.84 -4.24 2.78 2.96 1.442004.3 -7.50 -4.13 -7.15 -26.07 -14.29 2.48 4.53 -4.31 -4.35 2.94 3.10 1.70



5.7 Experiment 7: Experiments 5 and 6 Combined


1. Combine experiments 5 and 6.




2000.4 0.12 0.00 0.03 0.10 0.02 0.96 0.00 0.00 0.00 0.12 -0.02 -0.032001.1 0.31 0.00 0.19 0.36 0.14 2.30 1.20 -0.06 -0.33 0.33 -0.11 -0.082001.2 0.77 0.01 0.47 1.15 0.41 5.75 2.36 -0.09 -0.54 0.72 -0.30 -0.232001.3 1.19 0.05 0.16 1.74 0.58 11.30 2.85 -0.10 -0.75 1.32 -0.51 -0.802001.4 1.70 0.13 0.43 2.97 0.93 14.61 4.11 -0.08 -1.03 1.63 -0.78 -1.122002.1 1.42 0.21 0.07 3.01 1.15 12.95 4.20 -0.13 -1.66 1.54 -0.90 -1.532002.2 0.45 0.29 -0.34 1.35 1.09 9.63 4.30 -0.09 -1.83 1.27 -0.76 -1.722002.3 -0.41 0.26 -0.57 -0.49 0.85 8.89 4.37 -0.15 -1.95 1.24 -0.55 -1.862002.4 -0.89 0.21 -0.60 -2.60 0.52 10.12 4.68 -0.22 -2.06 1.44 -0.36 -2.102003.1 -1.00 0.12 -0.80 -3.57 0.16 11.32 4.86 -0.37 -2.45 1.67 -0.27 -2.422003.2 -1.33 0.02 -0.99 -4.78 -0.27 11.66 4.97 -0.48 -2.55 1.77 -0.19 -2.692003.3 -1.99 -0.09 -1.63 -6.78 -0.98 9.70 5.09 -0.59 -2.66 1.67 0.00 -2.972003.4 -3.02 -0.25 -2.19 -9.77 -1.95 5.68 5.10 -0.74 -2.71 1.41 0.31 -2.932004.1 -4.16 -0.51 -2.94 -13.15 -3.20 3.73 5.10 -1.01 -2.95 1.42 0.73 -2.792004.2 -5.20 -0.84 -3.72 -16.73 -4.73 2.97 4.94 -1.30 -3.01 1.60 1.22 -2.552004.3 -6.07 -1.24 -4.35 -20.04 -6.41 2.47 4.53 -1.65 -3.00 1.79 1.65 -2.27


Chapter 6

“Evaluating Inflation Targeting”

This chapter presents the seven experiments in Fair (2007b), “Evaluating InflationTargeting Using a Macroeconometric Model.” If you do the following experimentsusing the MCC model on the website, you will exactly duplicate the results in thispaper. This will not be true for the MCH model since the MCC and MCH modelsdiffer somewhat.

6.1 Experiment 1: Effects of a Decrease in RS

This is the same as experiment 4.1.

6.2 Experiment 2: Effects of a Positive Price Shock: RSExogenous

This is the same as experiment 4.2. It is Case 1 in Table 6 in the paper.

61

62 CHAPTER 6. “EVALUATING INFLATION TARGETING”

6.3 Experiment 3: Effects of a Positive Price Shock: RSEndogenous

This is Case 2 in Table 6 in the paper. Table 6.3 presents selected results for theUnited States. If you use the MCH model for this experiment, you will duplicatethe results in this table.




4. Click “Modify equation coefficients,” then the United States, and then equa-tion 10, thePF equation. Change the constant term in this equation by adding0.005 to it. Be sure to save the changes once you are done.


6.3. EXPERIMENT 3: EFFECTS OF A POSITIVE PRICE SHOCK: RS ENDOGENOUS63




1994.1 -0.02 0.50 -0.02 -0.03 0.03 -0.04 0.13 0.44 0.06 0.05 0.00 -0.221994.2 -0.08 0.97 -0.08 -0.14 0.08 -0.08 0.27 0.85 0.08 0.11 0.02 -0.401994.3 -0.16 1.41 -0.16 -0.32 0.11 -0.13 0.35 1.23 0.11 0.16 0.05 -0.541994.4 -0.27 1.81 -0.24 -0.56 0.13 -0.18 0.37 1.58 0.16 0.21 0.10 -0.641995.1 -0.39 2.18 -0.34 -0.83 0.12 -0.28 0.38 1.92 0.31 0.24 0.15 -0.711995.2 -0.51 2.52 -0.44 -1.13 0.08 -0.33 0.39 2.23 0.38 0.28 0.20 -0.781995.3 -0.62 2.81 -0.55 -1.45 0.01 -0.38 0.38 2.49 0.46 0.30 0.26 -0.801995.4 -0.73 3.11 -0.65 -1.76 -0.08 -0.44 0.36 2.76 0.55 0.33 0.32 -0.811996.1 -0.83 3.38 -0.74 -2.05 -0.19 -0.54 0.33 3.03 0.78 0.35 0.37 -0.821996.2 -0.91 3.63 -0.83 -2.28 -0.32 -0.59 0.30 3.26 0.87 0.38 0.42 -0.821996.3 -0.98 3.87 -0.90 -2.51 -0.44 -0.65 0.26 3.49 0.96 0.43 0.47 -0.821996.4 -1.04 4.07 -0.97 -2.71 -0.57 -0.70 0.22 3.68 1.07 0.45 0.50 -0.791997.1 -1.09 4.28 -1.03 -2.87 -0.71 -0.78 0.20 3.90 1.34 0.46 0.53 -0.781997.2 -1.13 4.49 -1.09 -2.98 -0.84 -0.84 0.16 4.09 1.45 0.48 0.56 -0.771997.3 -1.15 4.68 -1.13 -3.00 -0.96 -0.89 0.13 4.27 1.55 0.51 0.58 -0.761997.4 -1.17 4.86 -1.16 -3.06 -1.05 -0.96 0.10 4.44 1.65 0.54 0.58 -0.731998.1 -1.19 5.04 -1.20 -3.04 -1.16 -1.06 0.10 4.64 1.94 0.52 0.58 -0.711998.2 -1.20 5.22 -1.23 -3.00 -1.24 -1.10 0.09 4.81 2.01 0.55 0.57 -0.711998.3 -1.20 5.39 -1.26 -2.96 -1.30 -1.13 0.08 4.97 2.12 0.57 0.57 -0.691998.4 -1.21 5.56 -1.28 -2.90 -1.35 -1.17 0.06 5.13 2.21 0.59 0.57 -0.70



6.4 Experiment 4: Effects of a Positive Demand Shock: RSExogenous





4. Click “Drop or add equations” and for the United States drop theRS equation(equation 30).

5. Click “Modify equation coefficients,” then the United States, and then equa-tion 1, theCS equation. Change the constant term in this equation by adding0.005 to it. Be sure to save the changes once you are done. Then click theUnited States and then equation 2, the CN equation. Change the constantterm in this equation by adding 0.005 to it. Be sure to save the changes onceyou are done.


6.4. EXPERIMENT 4: EFFECTS OF A POSITIVE DEMAND SHOCK: RS EXOGENOUS65




1994.1 0.27 -0.01 0.48 0.23 0.18 0.00 0.00 -0.01 0.00 -0.02 -0.06 -0.141994.2 0.64 0.04 0.91 0.73 0.52 0.00 0.00 0.03 0.01 -0.06 -0.17 -0.381994.3 1.01 0.12 1.29 1.41 0.96 0.00 0.00 0.11 0.02 -0.11 -0.32 -0.651994.4 1.31 0.23 1.60 2.17 1.48 -0.01 0.00 0.21 0.03 -0.17 -0.48 -0.931995.1 1.55 0.36 1.87 2.98 2.04 -0.01 0.00 0.33 0.09 -0.23 -0.61 -1.201995.2 1.72 0.50 2.09 3.80 2.63 -0.02 0.00 0.45 0.12 -0.30 -0.71 -1.481995.3 1.84 0.72 2.26 4.43 3.20 -0.03 0.00 0.64 0.17 -0.35 -0.78 -1.751995.4 1.91 0.82 2.40 4.87 3.75 -0.04 0.00 0.73 0.22 -0.41 -0.84 -1.941996.1 1.93 0.94 2.49 5.13 4.23 -0.02 0.00 0.86 0.34 -0.48 -0.85 -2.141996.2 1.91 1.06 2.55 5.20 4.66 -0.02 0.00 0.97 0.41 -0.54 -0.85 -2.301996.3 1.87 1.16 2.59 5.24 5.02 -0.02 0.00 1.06 0.47 -0.59 -0.84 -2.451996.4 1.81 1.27 2.60 5.20 5.31 -0.02 0.00 1.17 0.55 -0.63 -0.79 -2.561997.1 1.73 1.36 2.58 5.05 5.52 0.01 0.00 1.27 0.73 -0.68 -0.74 -2.671997.2 1.64 1.45 2.56 4.81 5.67 0.03 0.00 1.35 0.80 -0.69 -0.70 -2.761997.3 1.54 1.51 2.52 4.46 5.74 0.05 0.00 1.42 0.89 -0.71 -0.65 -2.821997.4 1.46 1.56 2.47 4.17 5.76 0.08 0.00 1.47 0.97 -0.72 -0.58 -2.901998.1 1.38 1.61 2.42 3.79 5.73 0.15 0.00 1.53 1.16 -0.72 -0.51 -2.961998.2 1.31 1.64 2.36 3.39 5.65 0.19 0.00 1.57 1.23 -0.71 -0.45 -3.041998.3 1.25 1.66 2.31 3.03 5.54 0.22 0.00 1.60 1.31 -0.68 -0.40 -3.071998.4 1.17 1.67 2.24 2.67 5.39 0.28 0.00 1.61 1.39 -0.67 -0.36 -3.11



6.5 Experiment 5: Effects of a Positive Demand Shock: RSEndogenous





4. Click “Modify equation coefficients,” then the United States, and then equa-tion 1, theCS equation. Change the constant term in this equation by adding0.005 to it. Be sure to save the changes once you are done. Then click theUnited States and then equation 2, the CN equation. Change the constantterm in this equation by adding 0.005 to it. Be sure to save the changes onceyou are done.


6.5. EXPERIMENT 5: EFFECTS OF A POSITIVE DEMAND SHOCK: RS ENDOGENOUS67




1994.1 0.27 -0.01 0.47 0.23 0.18 0.00 0.05 -0.01 -0.02 -0.02 -0.06 -0.141994.2 0.63 0.03 0.89 0.71 0.51 0.00 0.16 0.02 -0.03 -0.06 -0.17 -0.361994.3 0.97 0.11 1.24 1.33 0.95 -0.01 0.31 0.09 -0.05 -0.10 -0.31 -0.611994.4 1.24 0.21 1.52 1.97 1.44 -0.02 0.45 0.17 -0.07 -0.15 -0.45 -0.841995.1 1.42 0.32 1.75 2.58 1.96 -0.03 0.57 0.25 -0.11 -0.20 -0.57 -1.051995.2 1.53 0.43 1.92 3.14 2.48 -0.04 0.66 0.34 -0.12 -0.26 -0.64 -1.241995.3 1.59 0.61 2.05 3.48 2.97 -0.06 0.72 0.50 -0.11 -0.30 -0.69 -1.411995.4 1.59 0.67 2.14 3.63 3.41 -0.08 0.78 0.55 -0.10 -0.35 -0.71 -1.491996.1 1.56 0.76 2.19 3.60 3.79 -0.08 0.79 0.62 -0.06 -0.40 -0.70 -1.571996.2 1.50 0.83 2.22 3.45 4.10 -0.09 0.80 0.69 -0.02 -0.44 -0.68 -1.611996.3 1.43 0.89 2.23 3.27 4.34 -0.09 0.79 0.75 0.02 -0.48 -0.65 -1.631996.4 1.35 0.95 2.22 3.06 4.51 -0.09 0.76 0.80 0.08 -0.51 -0.59 -1.631997.1 1.27 0.99 2.21 2.79 4.62 -0.08 0.72 0.86 0.21 -0.54 -0.54 -1.621997.2 1.19 1.04 2.18 2.49 4.68 -0.08 0.69 0.91 0.28 -0.55 -0.50 -1.601997.3 1.12 1.07 2.15 2.19 4.69 -0.06 0.66 0.94 0.35 -0.57 -0.45 -1.571997.4 1.06 1.09 2.12 1.93 4.66 -0.04 0.62 0.97 0.43 -0.57 -0.40 -1.551998.1 1.02 1.11 2.10 1.67 4.60 0.01 0.58 1.00 0.58 -0.57 -0.35 -1.531998.2 0.99 1.12 2.08 1.45 4.53 0.03 0.54 1.02 0.64 -0.56 -0.31 -1.521998.3 0.98 1.13 2.06 1.27 4.45 0.05 0.51 1.04 0.70 -0.55 -0.28 -1.511998.4 0.95 1.13 2.03 1.12 4.35 0.09 0.50 1.05 0.77 -0.54 -0.27 -1.49


Chapter 7

“Possible MacroeconomicConsequences of Large Deficits”

This chapter presents some of the experiments in Fair (2011), “Possible Macroe-conomic Consequences of Large Future Federal Government Deficits.” If you dothe following experiments using the MCE model on the website, you will exactlyduplicate the results in this paper. This will not be true for the MCH model since theMCE and MCH models differ somewhat. The MCH model forecast is the baselineforecast for the following experiments.

69

70CHAPTER 7. “POSSIBLE MACROECONOMIC CONSEQUENCES OF LARGE DEFICITS”

7.1 Run 1: Baseline Run

Table 7.1 presents selected results for the United States from the baseline run, whichis the MCH model forecast. You can examine these results by doing the following.



3. Click “Examine the results without solving the model”.

7.1. RUN 1: BASELINE RUN 71


Baseline RunPercentage Points

qtr g π RS SPCT UR DEF DEBT

2011.1 2.24 1.85 0.13 -3.44 8.99 8.08 51.782011.2 1.63 2.10 0.05 -3.53 9.07 8.49 50.542011.3 1.46 2.39 0.02 -3.18 9.06 7.65 53.152011.4 1.61 2.18 0.01 -3.58 8.71 7.15 55.092012.1 2.08 1.88 0.07 -3.85 8.24 6.76 56.372012.2 2.71 1.81 0.25 -3.23 8.13 6.70 58.282012.3 3.51 1.87 0.44 -2.71 7.97 6.57 59.572012.4 4.16 2.37 0.65 -2.30 7.74 6.41 60.682013.1 4.86 2.81 0.91 -2.00 7.48 5.58 61.562013.2 5.04 3.08 1.18 -1.78 7.25 5.51 62.442013.3 4.87 3.28 1.43 -1.64 7.03 5.46 63.282013.4 4.55 3.46 1.65 -1.54 6.85 5.43 64.092014.1 4.34 3.58 1.87 -1.49 6.68 5.42 64.862014.2 4.20 3.69 2.08 -1.46 6.54 5.42 65.622014.3 4.08 3.78 2.27 -1.46 6.42 5.44 66.352014.4 3.96 3.85 2.44 -1.47 6.32 5.46 67.082015.1 3.84 3.90 2.60 -1.50 6.24 5.50 67.812015.2 3.72 3.93 2.74 -1.54 6.17 5.55 68.552015.3 3.61 3.94 2.86 -1.58 6.12 5.60 69.282015.4 3.51 3.94 2.96 -1.63 6.08 5.66 70.032016.1 3.42 3.93 3.05 -1.66 6.05 5.70 70.292016.2 3.34 3.90 3.13 -1.69 6.04 5.74 70.582016.3 3.27 3.87 3.19 -1.71 6.03 5.78 70.892016.4 3.21 3.83 3.25 -1.73 6.02 5.82 71.212017.1 3.16 3.79 3.29 -1.74 6.02 5.86 71.552017.2 3.12 3.75 3.33 -1.74 6.02 5.90 71.902017.3 3.09 3.71 3.36 -1.74 6.03 5.93 72.252017.4 3.07 3.66 3.38 -1.73 6.03 5.96 72.622018.1 3.06 3.62 3.40 -1.71 6.04 5.98 72.992018.2 3.06 3.58 3.42 -1.68 6.04 6.01 73.372018.3 3.05 3.55 3.44 -1.65 6.04 6.02 73.742018.4 3.06 3.51 3.45 -1.61 6.04 6.04 74.122019.1 3.07 3.48 3.47 -1.57 6.04 6.05 74.492019.2 3.08 3.45 3.48 -1.52 6.03 6.05 74.862019.3 3.09 3.42 3.50 -1.47 6.03 6.06 75.222019.4 3.10 3.40 3.51 -1.42 6.02 6.06 75.582020.1 3.12 3.38 3.53 -1.36 6.00 6.05 75.922020.2 3.13 3.36 3.55 -1.30 5.99 6.05 76.262020.3 3.15 3.35 3.57 -1.24 5.97 6.04 76.582020.4 3.17 3.34 3.59 -1.18 5.95 6.03 76.90

• g = real GDP, four quarter percent change.• π = GDP deflator, four quarter percent change.• RS = three-month Treasury bill rate.• SPCT = current account as a percent of GDP.• UR = unemployment rate.• DEF = federal government deficit as a percent of GDP.• DEBT = federal government debt as a percent of GDP.


7.2 Run 3: Sluggish Stock Market

Tables 7.2a and 7.2b present selected results for the United States. Table 7.2a givesresults in terms of the levels of the variables, and Table 7.2b gives results in terms ofdifferences from the baseline run. If you use the MCH model for this experiment,you will duplicate the results in these tables.



3. Click “Modify equation coefficients,” click the United States, click equation25 (the CG equation), change the first coefficient (the constant term) to behalf the estimated value, and click “Save Changes.”.


This experiment is Run 3 in Table 2 in the paper.

7.2. RUN 3: SLUGGISH STOCK MARKET 73


Predicted LevelsPercentage Points


2011.1 2.24 1.85 0.13 -3.44 8.99 8.08 51.782011.2 1.62 2.10 0.04 -3.53 9.07 8.50 50.542011.3 1.43 2.38 0.01 -3.17 9.08 7.66 53.172011.4 1.53 2.17 0.00 -3.57 8.75 7.17 55.142012.1 1.94 1.86 0.03 -3.83 8.30 6.79 56.472012.2 2.53 1.78 0.17 -3.20 8.23 6.74 58.432012.3 3.30 1.82 0.32 -2.67 8.10 6.62 59.772012.4 3.94 2.29 0.50 -2.24 7.90 6.46 60.932013.1 4.66 2.71 0.72 -1.92 7.68 5.63 61.862013.2 4.86 2.97 0.96 -1.70 7.48 5.55 62.792013.3 4.72 3.15 1.17 -1.53 7.30 5.49 63.682013.4 4.42 3.32 1.36 -1.42 7.13 5.45 64.522014.1 4.23 3.43 1.55 -1.35 6.99 5.43 65.332014.2 4.11 3.52 1.73 -1.30 6.87 5.42 66.122014.3 4.01 3.61 1.90 -1.28 6.77 5.42 66.882014.4 3.90 3.67 2.04 -1.28 6.68 5.43 67.642015.1 3.79 3.72 2.17 -1.29 6.62 5.46 68.382015.2 3.68 3.74 2.29 -1.31 6.57 5.49 69.132015.3 3.58 3.75 2.38 -1.34 6.53 5.52 69.882015.4 3.48 3.75 2.47 -1.37 6.50 5.56 70.632016.1 3.40 3.73 2.53 -1.38 6.49 5.58 70.892016.2 3.32 3.70 2.59 -1.39 6.49 5.61 71.172016.3 3.26 3.67 2.63 -1.40 6.49 5.64 71.472016.4 3.20 3.63 2.66 -1.41 6.50 5.66 71.772017.1 3.16 3.59 2.69 -1.40 6.51 5.68 72.092017.2 3.12 3.54 2.70 -1.39 6.53 5.70 72.422017.3 3.10 3.50 2.71 -1.37 6.54 5.71 72.752017.4 3.08 3.45 2.72 -1.35 6.56 5.72 73.092018.1 3.07 3.41 2.72 -1.31 6.58 5.73 73.422018.2 3.07 3.37 2.72 -1.28 6.60 5.73 73.762018.3 3.07 3.33 2.71 -1.24 6.61 5.73 74.092018.4 3.07 3.29 2.71 -1.19 6.62 5.72 74.422019.1 3.08 3.26 2.70 -1.13 6.64 5.71 74.742019.2 3.09 3.23 2.70 -1.07 6.64 5.70 75.062019.3 3.10 3.20 2.69 -1.01 6.65 5.68 75.362019.4 3.12 3.17 2.69 -0.95 6.66 5.66 75.652020.1 3.14 3.15 2.69 -0.87 6.66 5.64 75.932020.2 3.16 3.14 2.69 -0.80 6.66 5.61 76.192020.3 3.18 3.12 2.69 -0.73 6.65 5.58 76.442020.4 3.20 3.11 2.69 -0.65 6.65 5.55 76.67



Table 7.1bResults for the United States



2011.1 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.002011.2 -0.01 0.00 -0.02 -0.01 -0.01 0.00 0.00 0.00 0.00 0.00 0.00 0.012011.3 -0.03 0.00 -0.05 -0.08 -0.03 0.00 -0.01 0.00 0.00 0.00 0.02 0.022011.4 -0.07 -0.01 -0.09 -0.21 -0.07 0.00 -0.01 -0.01 0.00 0.01 0.03 0.052012.1 -0.13 -0.02 -0.14 -0.41 -0.13 0.00 -0.04 -0.01 0.01 0.02 0.06 0.092012.2 -0.18 -0.03 -0.20 -0.62 -0.21 0.00 -0.08 -0.02 0.01 0.03 0.10 0.142012.3 -0.24 -0.05 -0.25 -0.81 -0.31 0.01 -0.12 -0.04 0.02 0.04 0.13 0.202012.4 -0.28 -0.08 -0.31 -0.97 -0.43 0.01 -0.15 -0.06 0.03 0.06 0.17 0.252013.1 -0.32 -0.11 -0.37 -1.12 -0.55 0.01 -0.19 -0.08 0.05 0.07 0.20 0.302013.2 -0.35 -0.14 -0.42 -1.23 -0.68 0.02 -0.22 -0.11 0.06 0.09 0.23 0.352013.3 -0.38 -0.18 -0.48 -1.32 -0.82 0.03 -0.26 -0.14 0.06 0.11 0.26 0.392013.4 -0.40 -0.22 -0.53 -1.39 -0.95 0.04 -0.29 -0.17 0.07 0.12 0.29 0.432014.1 -0.42 -0.26 -0.58 -1.44 -1.08 0.04 -0.32 -0.20 0.09 0.14 0.31 0.472014.2 -0.44 -0.30 -0.62 -1.48 -1.21 0.05 -0.35 -0.24 0.09 0.16 0.33 0.502014.3 -0.45 -0.35 -0.67 -1.50 -1.34 0.06 -0.38 -0.27 0.09 0.18 0.35 0.532014.4 -0.46 -0.39 -0.71 -1.51 -1.46 0.07 -0.40 -0.31 0.08 0.19 0.36 0.552015.1 -0.47 -0.44 -0.75 -1.51 -1.57 0.07 -0.43 -0.35 0.07 0.21 0.38 0.572015.2 -0.47 -0.48 -0.79 -1.50 -1.67 0.08 -0.45 -0.39 0.06 0.23 0.40 0.592015.3 -0.48 -0.53 -0.83 -1.48 -1.77 0.09 -0.47 -0.44 0.04 0.24 0.41 0.602015.4 -0.48 -0.58 -0.87 -1.46 -1.86 0.10 -0.49 -0.48 0.03 0.26 0.42 0.602016.1 -0.48 -0.62 -0.90 -1.43 -1.95 0.10 -0.52 -0.53 -0.02 0.28 0.44 0.602016.2 -0.49 -0.67 -0.94 -1.40 -2.03 0.11 -0.54 -0.57 -0.03 0.29 0.45 0.592016.3 -0.49 -0.72 -0.97 -1.36 -2.10 0.12 -0.56 -0.61 -0.05 0.31 0.46 0.582016.4 -0.49 -0.77 -1.01 -1.32 -2.17 0.13 -0.58 -0.66 -0.07 0.32 0.48 0.572017.1 -0.49 -0.82 -1.04 -1.28 -2.24 0.13 -0.60 -0.71 -0.12 0.34 0.49 0.552017.2 -0.48 -0.87 -1.07 -1.23 -2.30 0.13 -0.62 -0.76 -0.14 0.35 0.50 0.522017.3 -0.48 -0.92 -1.10 -1.18 -2.35 0.14 -0.64 -0.80 -0.16 0.36 0.52 0.502017.4 -0.48 -0.97 -1.13 -1.12 -2.41 0.15 -0.66 -0.85 -0.18 0.37 0.53 0.472018.1 -0.48 -1.03 -1.16 -1.07 -2.46 0.16 -0.68 -0.90 -0.23 0.39 0.54 0.432018.2 -0.48 -1.08 -1.19 -1.01 -2.50 0.17 -0.71 -0.95 -0.25 0.40 0.56 0.392018.3 -0.47 -1.13 -1.22 -0.95 -2.55 0.18 -0.72 -1.00 -0.27 0.41 0.57 0.352018.4 -0.47 -1.19 -1.25 -0.89 -2.60 0.19 -0.74 -1.05 -0.28 0.42 0.58 0.302019.1 -0.46 -1.24 -1.28 -0.83 -2.64 0.20 -0.76 -1.10 -0.33 0.44 0.60 0.252019.2 -0.46 -1.29 -1.30 -0.76 -2.68 0.22 -0.78 -1.15 -0.35 0.45 0.61 0.202019.3 -0.46 -1.35 -1.33 -0.70 -2.72 0.23 -0.80 -1.20 -0.36 0.46 0.63 0.142019.4 -0.45 -1.40 -1.36 -0.64 -2.76 0.25 -0.82 -1.25 -0.38 0.47 0.64 0.072020.1 -0.45 -1.46 -1.39 -0.58 -2.80 0.27 -0.84 -1.30 -0.42 0.49 0.65 0.012020.2 -0.44 -1.51 -1.41 -0.52 -2.84 0.28 -0.86 -1.35 -0.43 0.50 0.67 -0.072020.3 -0.43 -1.57 -1.44 -0.46 -2.89 0.31 -0.88 -1.40 -0.44 0.51 0.68 -0.142020.4 -0.43 -1.62 -1.47 -0.41 -2.93 0.33 -0.89 -1.44 -0.46 0.52 0.69 -0.22


7.3. RUN 4: INCOME TAX INCREASE 75

7.3 Run 4: Income Tax Increase




3. Click “Examine the results without solving the model.” List the values ofGDP , THG, Y T , TAUG, POP , and PH for 2011:1–2020:4. Computefor each quarter:

D1Gnew = (THG+ .03 ·GDP )/Y T − (TAUG · Y T )/(POP · PH)









2011.1 1.65 1.91 0.06 -3.36 9.07 5.23 51.332011.2 0.29 2.14 0.00 -3.32 9.33 5.86 49.802011.3 -0.55 2.34 0.00 -2.81 9.57 5.20 52.212011.4 -0.92 2.01 0.00 -3.04 9.47 4.81 53.942012.1 -0.25 1.50 0.00 -3.13 9.23 4.51 54.952012.2 0.93 1.27 0.00 -2.37 9.27 4.48 56.582012.3 2.33 1.24 0.00 -1.72 9.19 4.32 57.512012.4 3.55 1.66 0.06 -1.20 8.98 4.09 58.202013.1 4.74 2.07 0.24 -0.81 8.69 3.18 58.612013.2 5.27 2.37 0.48 -0.52 8.38 3.01 58.962013.3 5.34 2.63 0.74 -0.32 8.07 2.88 59.242013.4 5.14 2.89 1.00 -0.18 7.76 2.76 59.452014.1 4.97 3.10 1.26 -0.09 7.48 2.67 59.632014.2 4.81 3.30 1.52 -0.04 7.22 2.61 59.772014.3 4.64 3.49 1.76 -0.02 6.99 2.56 59.882014.4 4.45 3.65 1.99 -0.03 6.79 2.54 59.982015.1 4.26 3.77 2.19 -0.05 6.63 2.53 60.102015.2 4.06 3.86 2.37 -0.09 6.50 2.54 60.212015.3 3.88 3.92 2.53 -0.14 6.39 2.56 60.332015.4 3.72 3.95 2.67 -0.19 6.31 2.59 60.462016.1 3.57 3.96 2.78 -0.21 6.25 2.60 60.112016.2 3.45 3.95 2.87 -0.26 6.21 2.62 59.792016.3 3.34 3.92 2.96 -0.29 6.18 2.64 59.482016.4 3.25 3.89 3.03 -0.32 6.17 2.66 59.202017.1 3.18 3.84 3.08 -0.32 6.16 2.68 58.952017.2 3.12 3.80 3.12 -0.33 6.16 2.69 58.712017.3 3.08 3.75 3.15 -0.34 6.16 2.71 58.482017.4 3.05 3.70 3.18 -0.34 6.16 2.72 58.272018.1 3.03 3.65 3.21 -0.30 6.16 2.72 58.062018.2 3.02 3.60 3.23 -0.28 6.17 2.72 57.872018.3 3.02 3.56 3.24 -0.25 6.17 2.72 57.672018.4 3.02 3.52 3.26 -0.21 6.17 2.71 57.482019.1 3.03 3.49 3.28 -0.15 6.17 2.70 57.292019.2 3.04 3.46 3.30 -0.09 6.16 2.68 57.102019.3 3.06 3.43 3.31 -0.04 6.15 2.66 56.902019.4 3.07 3.40 3.33 0.03 6.14 2.64 56.702020.1 3.09 3.39 3.35 0.11 6.13 2.61 56.492020.2 3.11 3.37 3.37 0.18 6.11 2.58 56.272020.3 3.13 3.36 3.40 0.26 6.09 2.55 56.052020.4 3.16 3.35 3.42 0.34 6.07 2.51 55.81


7.3. RUN 4: INCOME TAX INCREASE 77




2011.1 -0.58 0.06 -0.81 -2.04 -0.40 -0.02 -0.06 0.05 0.00 0.08 0.07 -0.452011.2 -1.32 0.04 -1.53 -3.93 -1.09 -0.02 -0.05 0.03 0.00 0.22 0.26 -0.742011.3 -1.98 -0.05 -2.15 -5.71 -1.97 -0.02 -0.02 -0.04 -0.01 0.37 0.51 -0.942011.4 -2.49 -0.17 -2.69 -7.45 -2.96 -0.02 -0.01 -0.14 -0.02 0.54 0.76 -1.162012.1 -2.85 -0.31 -3.11 -9.18 -4.00 -0.06 -0.07 -0.28 -0.09 0.71 0.99 -1.422012.2 -3.04 -0.49 -3.45 -10.42 -5.02 -0.05 -0.25 -0.43 -0.10 0.86 1.14 -1.702012.3 -3.10 -0.67 -3.68 -11.09 -5.97 -0.03 -0.44 -0.59 -0.11 0.99 1.22 -2.062012.4 -3.06 -0.85 -3.83 -11.21 -6.81 -0.01 -0.59 -0.74 -0.12 1.10 1.24 -2.482013.1 -2.96 -1.02 -3.92 -11.03 -7.51 -0.08 -0.67 -0.88 -0.15 1.19 1.21 -2.962013.2 -2.82 -1.18 -3.96 -10.61 -8.07 -0.06 -0.70 -1.01 -0.17 1.26 1.14 -3.482013.3 -2.67 -1.30 -3.96 -10.04 -8.50 -0.05 -0.69 -1.12 -0.21 1.32 1.03 -4.052013.4 -2.51 -1.41 -3.94 -9.39 -8.80 -0.04 -0.66 -1.21 -0.25 1.37 0.91 -4.642014.1 -2.38 -1.48 -3.90 -8.73 -8.99 -0.13 -0.62 -1.29 -0.36 1.40 0.79 -5.242014.2 -2.25 -1.54 -3.86 -8.08 -9.08 -0.14 -0.56 -1.34 -0.41 1.42 0.68 -5.852014.3 -2.14 -1.58 -3.82 -7.46 -9.11 -0.16 -0.51 -1.38 -0.48 1.43 0.57 -6.472014.4 -2.05 -1.60 -3.78 -6.88 -9.08 -0.18 -0.45 -1.41 -0.55 1.44 0.47 -7.102015.1 -1.99 -1.61 -3.75 -6.35 -8.99 -0.30 -0.41 -1.44 -0.76 1.46 0.39 -7.722015.2 -1.93 -1.61 -3.72 -5.88 -8.88 -0.35 -0.37 -1.45 -0.83 1.45 0.33 -8.342015.3 -1.89 -1.60 -3.71 -5.44 -8.74 -0.39 -0.33 -1.46 -0.91 1.44 0.27 -8.952015.4 -1.85 -1.59 -3.70 -5.05 -8.60 -0.44 -0.29 -1.46 -0.98 1.43 0.23 -9.562016.1 -1.84 -1.58 -3.69 -4.70 -8.44 -0.56 -0.27 -1.48 -1.18 1.44 0.20 -10.182016.2 -1.83 -1.56 -3.69 -4.39 -8.29 -0.62 -0.25 -1.48 -1.24 1.43 0.17 -10.792016.3 -1.82 -1.55 -3.70 -4.11 -8.15 -0.67 -0.23 -1.47 -1.30 1.42 0.16 -11.402016.4 -1.82 -1.54 -3.71 -3.86 -8.01 -0.72 -0.22 -1.47 -1.35 1.41 0.14 -12.002017.1 -1.82 -1.53 -3.73 -3.64 -7.88 -0.82 -0.21 -1.48 -1.49 1.42 0.14 -12.602017.2 -1.83 -1.52 -3.74 -3.44 -7.76 -0.87 -0.21 -1.48 -1.53 1.41 0.13 -13.192017.3 -1.83 -1.51 -3.77 -3.26 -7.66 -0.91 -0.20 -1.48 -1.56 1.40 0.13 -13.772017.4 -1.84 -1.51 -3.79 -3.10 -7.58 -0.95 -0.20 -1.48 -1.59 1.39 0.13 -14.352018.1 -1.85 -1.50 -3.81 -2.96 -7.50 -1.01 -0.20 -1.49 -1.65 1.41 0.13 -14.932018.2 -1.86 -1.50 -3.84 -2.83 -7.43 -1.04 -0.20 -1.49 -1.67 1.40 0.13 -15.502018.3 -1.87 -1.50 -3.87 -2.72 -7.38 -1.07 -0.19 -1.50 -1.68 1.40 0.13 -16.072018.4 -1.87 -1.50 -3.89 -2.62 -7.35 -1.09 -0.19 -1.50 -1.69 1.40 0.13 -16.642019.1 -1.88 -1.50 -3.92 -2.54 -7.32 -1.12 -0.19 -1.50 -1.70 1.42 0.13 -17.202019.2 -1.89 -1.50 -3.95 -2.46 -7.30 -1.13 -0.19 -1.50 -1.70 1.43 0.13 -17.762019.3 -1.89 -1.49 -3.98 -2.40 -7.29 -1.14 -0.19 -1.50 -1.69 1.44 0.13 -18.322019.4 -1.90 -1.49 -4.01 -2.35 -7.29 -1.14 -0.18 -1.50 -1.69 1.44 0.13 -18.882020.1 -1.91 -1.49 -4.04 -2.30 -7.30 -1.16 -0.18 -1.49 -1.66 1.47 0.13 -19.442020.2 -1.91 -1.49 -4.07 -2.27 -7.32 -1.15 -0.17 -1.49 -1.64 1.48 0.12 -19.992020.3 -1.91 -1.48 -4.10 -2.24 -7.34 -1.14 -0.17 -1.49 -1.63 1.50 0.12 -20.542020.4 -1.92 -1.48 -4.13 -2.22 -7.37 -1.13 -0.17 -1.48 -1.62 1.51 0.12 -21.09



7.4 Run 5: Transfer Payment Decrease




3. Click “Examine the results without solving the model.” List the values ofGDPR for 2011:1–2020:4. Take -3.0 percent of each of these values, andcall them the “TRGHQ decreases.” Then return to the main menu page.

4. Click “Change exogenous variables” and ask to change TRGHQ for theUnited States. Type in the TRGHQ decreases quarter by quarter. Be sureto save the changes once you are done.



7.4. RUN 5: TRANSFER PAYMENT DECREASE 79




2011.1 1.62 1.90 0.02 -3.36 9.12 5.23 51.352011.2 0.22 2.12 0.00 -3.31 9.44 5.86 49.832011.3 -0.67 2.29 0.00 -2.80 9.73 5.20 52.292011.4 -1.07 1.93 0.00 -3.02 9.68 4.81 54.052012.1 -0.40 1.39 0.00 -3.10 9.48 4.50 55.102012.2 0.81 1.13 0.00 -2.34 9.56 4.47 56.762012.3 2.26 1.07 0.00 -1.68 9.51 4.30 57.712012.4 3.53 1.47 0.00 -1.15 9.32 4.06 58.412013.1 4.77 1.87 0.11 -0.76 9.05 3.13 58.822013.2 5.35 2.17 0.31 -0.48 8.74 2.94 59.162013.3 5.46 2.42 0.54 -0.28 8.43 2.79 59.422013.4 5.30 2.69 0.78 -0.15 8.12 2.65 59.612014.1 5.14 2.91 1.02 -0.06 7.83 2.55 59.752014.2 4.98 3.13 1.26 -0.03 7.56 2.46 59.862014.3 4.80 3.33 1.50 -0.02 7.33 2.40 59.932014.4 4.60 3.51 1.72 -0.04 7.12 2.36 59.992015.1 4.39 3.64 1.90 -0.06 6.96 2.34 60.062015.2 4.18 3.74 2.07 -0.12 6.82 2.34 60.132015.3 3.98 3.81 2.22 -0.18 6.72 2.34 60.202015.4 3.80 3.85 2.35 -0.24 6.64 2.36 60.282016.1 3.64 3.86 2.44 -0.27 6.58 2.36 59.882016.2 3.50 3.86 2.53 -0.32 6.54 2.37 59.512016.3 3.38 3.83 2.59 -0.36 6.52 2.38 59.152016.4 3.29 3.80 2.65 -0.40 6.51 2.39 58.822017.1 3.21 3.75 2.69 -0.40 6.51 2.39 58.512017.2 3.15 3.70 2.71 -0.42 6.52 2.40 58.212017.3 3.11 3.65 2.74 -0.44 6.53 2.40 57.922017.4 3.08 3.60 2.75 -0.44 6.54 2.40 57.652018.1 3.06 3.55 2.76 -0.40 6.55 2.39 57.382018.2 3.05 3.51 2.77 -0.39 6.56 2.38 57.122018.3 3.04 3.46 2.78 -0.36 6.57 2.36 56.862018.4 3.05 3.42 2.78 -0.33 6.58 2.34 56.602019.1 3.06 3.39 2.79 -0.26 6.58 2.32 56.332019.2 3.07 3.36 2.79 -0.21 6.59 2.29 56.072019.3 3.08 3.33 2.80 -0.16 6.58 2.26 55.802019.4 3.10 3.31 2.81 -0.10 6.58 2.22 55.512020.1 3.12 3.29 2.82 -0.01 6.57 2.19 55.232020.2 3.14 3.28 2.83 0.06 6.56 2.15 54.932020.3 3.16 3.27 2.85 0.14 6.55 2.10 54.622020.4 3.18 3.26 2.87 0.22 6.53 2.06 54.30






2011.1 -0.61 0.06 -0.85 -2.06 -0.42 -0.02 -0.11 0.05 0.00 0.09 0.13 -0.442011.2 -1.39 0.02 -1.61 -4.18 -1.15 -0.02 -0.05 0.02 0.00 0.22 0.37 -0.702011.3 -2.10 -0.09 -2.26 -6.14 -2.08 -0.02 -0.02 -0.08 -0.01 0.38 0.67 -0.862011.4 -2.64 -0.24 -2.82 -8.04 -3.14 -0.01 -0.01 -0.21 -0.03 0.56 0.97 -1.042012.1 -3.01 -0.43 -3.27 -9.90 -4.25 -0.05 -0.07 -0.38 -0.11 0.75 1.24 -1.272012.2 -3.21 -0.65 -3.62 -11.23 -5.34 -0.03 -0.25 -0.57 -0.13 0.90 1.43 -1.532012.3 -3.28 -0.88 -3.87 -11.94 -6.35 -0.01 -0.44 -0.77 -0.15 1.03 1.54 -1.862012.4 -3.23 -1.11 -4.02 -12.06 -7.24 0.02 -0.65 -0.97 -0.16 1.14 1.58 -2.272013.1 -3.10 -1.33 -4.09 -11.83 -7.98 -0.04 -0.80 -1.15 -0.19 1.23 1.57 -2.742013.2 -2.93 -1.53 -4.10 -11.33 -8.57 -0.01 -0.87 -1.32 -0.20 1.30 1.50 -3.282013.3 -2.73 -1.70 -4.08 -10.64 -9.00 0.02 -0.88 -1.47 -0.23 1.36 1.40 -3.862013.4 -2.54 -1.85 -4.03 -9.86 -9.30 0.04 -0.87 -1.60 -0.27 1.39 1.27 -4.482014.1 -2.36 -1.97 -3.96 -9.06 -9.46 -0.04 -0.85 -1.70 -0.37 1.42 1.15 -5.112014.2 -2.20 -2.06 -3.89 -8.28 -9.53 -0.03 -0.82 -1.79 -0.42 1.43 1.02 -5.762014.3 -2.06 -2.13 -3.82 -7.53 -9.52 -0.04 -0.77 -1.85 -0.49 1.44 0.91 -6.422014.4 -1.94 -2.17 -3.76 -6.84 -9.44 -0.05 -0.73 -1.90 -0.57 1.43 0.80 -7.092015.1 -1.84 -2.21 -3.70 -6.21 -9.31 -0.15 -0.70 -1.96 -0.78 1.44 0.72 -7.752015.2 -1.77 -2.23 -3.65 -5.63 -9.14 -0.19 -0.67 -1.99 -0.86 1.42 0.65 -8.422015.3 -1.71 -2.25 -3.62 -5.12 -8.96 -0.22 -0.64 -2.02 -0.94 1.41 0.60 -9.082015.4 -1.66 -2.26 -3.59 -4.66 -8.77 -0.26 -0.61 -2.04 -1.02 1.39 0.55 -9.742016.1 -1.63 -2.27 -3.57 -4.25 -8.56 -0.36 -0.61 -2.08 -1.24 1.39 0.53 -10.412016.2 -1.61 -2.28 -3.56 -3.88 -8.37 -0.41 -0.60 -2.09 -1.31 1.37 0.51 -11.072016.3 -1.60 -2.28 -3.56 -3.55 -8.18 -0.46 -0.60 -2.11 -1.37 1.35 0.50 -11.732016.4 -1.59 -2.29 -3.56 -3.26 -8.01 -0.50 -0.60 -2.13 -1.43 1.33 0.49 -12.392017.1 -1.58 -2.31 -3.57 -3.01 -7.84 -0.57 -0.61 -2.16 -1.58 1.34 0.49 -13.042017.2 -1.58 -2.32 -3.58 -2.78 -7.70 -0.61 -0.61 -2.18 -1.63 1.32 0.50 -13.692017.3 -1.58 -2.33 -3.59 -2.57 -7.57 -0.64 -0.62 -2.20 -1.66 1.30 0.50 -14.332017.4 -1.59 -2.35 -3.61 -2.39 -7.46 -0.67 -0.63 -2.22 -1.69 1.29 0.51 -14.972018.1 -1.59 -2.37 -3.63 -2.23 -7.36 -0.71 -0.64 -2.25 -1.77 1.31 0.52 -15.612018.2 -1.59 -2.39 -3.65 -2.08 -7.28 -0.72 -0.65 -2.28 -1.79 1.30 0.52 -16.252018.3 -1.59 -2.41 -3.68 -1.96 -7.22 -0.73 -0.66 -2.30 -1.80 1.29 0.53 -16.892018.4 -1.60 -2.44 -3.70 -1.84 -7.17 -0.74 -0.67 -2.32 -1.81 1.29 0.54 -17.522019.1 -1.60 -2.46 -3.73 -1.75 -7.14 -0.74 -0.68 -2.34 -1.82 1.31 0.55 -18.162019.2 -1.60 -2.48 -3.75 -1.67 -7.11 -0.73 -0.69 -2.36 -1.82 1.31 0.55 -18.792019.3 -1.60 -2.50 -3.78 -1.59 -7.10 -0.72 -0.70 -2.38 -1.81 1.31 0.56 -19.432019.4 -1.60 -2.52 -3.80 -1.54 -7.10 -0.71 -0.70 -2.40 -1.80 1.32 0.56 -20.062020.1 -1.60 -2.54 -3.83 -1.49 -7.11 -0.69 -0.71 -2.42 -1.77 1.35 0.57 -20.702020.2 -1.59 -2.56 -3.86 -1.45 -7.12 -0.66 -0.71 -2.43 -1.76 1.36 0.57 -21.332020.3 -1.59 -2.58 -3.89 -1.42 -7.15 -0.63 -0.72 -2.45 -1.74 1.37 0.58 -21.962020.4 -1.59 -2.60 -3.92 -1.40 -7.18 -0.60 -0.72 -2.46 -1.73 1.39 0.58 -22.59


7.5. RUN 6: NATIONAL SALES TAX 81

7.5 Run 6: National Sales Tax




3. Click “Examine the results without solving the model.” List the values ofGDP , IBTG, PCS, CS, PCN , CN , PCD, CD, and IBTS for 2011:1–2020:4. Compute for each quarter:

D3Gnew = (IBTG+ .03 ·GDP )/(PCS ·CS+PCN ·CN +PCD ·CD

−IBTS − IBTG− .03 ·GDP )









2011.1 1.32 5.19 0.00 -2.86 9.13 5.77 50.092011.2 -0.65 5.43 0.00 -2.74 9.61 6.61 49.112011.3 -2.11 5.55 0.00 -2.13 10.13 6.18 52.112011.4 -3.00 5.09 0.00 -2.25 10.32 5.93 54.462012.1 -2.40 1.15 0.00 -2.23 10.34 5.76 56.092012.2 -0.86 0.73 0.00 -1.36 10.59 5.82 58.292012.3 1.04 0.56 0.00 -0.60 10.66 5.71 59.742012.4 2.78 0.88 0.00 0.01 10.53 5.49 60.882013.1 4.42 1.23 0.00 0.46 10.28 4.58 61.702013.2 5.33 1.51 0.03 0.80 9.95 4.35 62.382013.3 5.71 1.80 0.17 1.04 9.57 4.14 62.932013.4 5.75 2.12 0.39 1.20 9.18 3.95 63.352014.1 5.71 2.42 0.64 1.30 8.78 3.79 63.692014.2 5.61 2.74 0.91 1.34 8.40 3.66 63.962014.3 5.44 3.04 1.17 1.35 8.06 3.56 64.192014.4 5.20 3.31 1.43 1.33 7.74 3.50 64.382015.1 4.94 3.54 1.66 1.30 7.48 3.46 64.582015.2 4.66 3.72 1.87 1.23 7.26 3.44 64.782015.3 4.40 3.86 2.06 1.15 7.08 3.45 64.972015.4 4.15 3.95 2.22 1.07 6.93 3.47 65.182016.1 3.94 4.01 2.35 1.03 6.82 3.48 64.922016.2 3.75 4.03 2.46 0.96 6.74 3.50 64.682016.3 3.59 4.03 2.55 0.88 6.69 3.53 64.472016.4 3.45 4.00 2.63 0.82 6.65 3.56 64.292017.1 3.35 3.96 2.68 0.81 6.62 3.58 64.152017.2 3.26 3.92 2.72 0.76 6.61 3.61 64.022017.3 3.19 3.86 2.76 0.72 6.60 3.64 63.912017.4 3.15 3.81 2.79 0.69 6.60 3.66 63.822018.1 3.12 3.75 2.81 0.72 6.60 3.67 63.742018.2 3.10 3.70 2.82 0.71 6.60 3.68 63.682018.3 3.08 3.65 2.84 0.71 6.60 3.69 63.622018.4 3.08 3.60 2.85 0.72 6.60 3.69 63.562019.1 3.08 3.56 2.87 0.78 6.60 3.69 63.502019.2 3.09 3.53 2.88 0.81 6.59 3.69 63.452019.3 3.10 3.50 2.90 0.85 6.58 3.68 63.392019.4 3.12 3.47 2.91 0.89 6.57 3.66 63.332020.1 3.13 3.45 2.93 0.97 6.55 3.65 63.262020.2 3.15 3.44 2.95 1.03 6.54 3.63 63.182020.3 3.17 3.43 2.98 1.09 6.51 3.61 63.102020.4 3.19 3.42 3.00 1.16 6.49 3.58 63.00


7.5. RUN 6: NATIONAL SALES TAX 83




2011.1 -0.90 3.28 -1.23 -2.98 -0.64 -0.27 -0.13 2.88 0.33 0.58 0.14 -1.692011.2 -2.25 3.26 -2.66 -6.26 -1.86 -0.40 -0.05 2.87 0.40 0.79 0.54 -1.422011.3 -3.52 3.09 -3.88 -9.54 -3.46 -0.49 -0.02 2.74 0.45 1.04 1.06 -1.042011.4 -4.53 2.85 -4.90 -12.81 -5.29 -0.56 -0.01 2.54 0.48 1.33 1.60 -0.642012.1 -5.25 2.54 -5.71 -16.04 -7.23 -0.76 -0.07 2.28 0.52 1.62 2.10 -0.292012.2 -5.65 2.16 -6.36 -18.46 -9.13 -0.78 -0.25 1.97 0.52 1.88 2.46 0.002012.3 -5.82 1.76 -6.83 -19.88 -10.91 -0.78 -0.44 1.63 0.53 2.11 2.69 0.172012.4 -5.80 1.36 -7.15 -20.32 -12.48 -0.76 -0.65 1.28 0.52 2.31 2.79 0.212013.1 -5.65 0.97 -7.32 -20.17 -13.81 -0.93 -0.91 0.96 0.53 2.46 2.80 0.142013.2 -5.39 0.61 -7.37 -19.53 -14.88 -0.89 -1.15 0.66 0.53 2.58 2.70 -0.062013.3 -5.07 0.30 -7.33 -18.51 -15.68 -0.86 -1.26 0.40 0.52 2.68 2.54 -0.362013.4 -4.72 0.04 -7.23 -17.26 -16.24 -0.83 -1.27 0.18 0.50 2.75 2.33 -0.742014.1 -4.41 -0.16 -7.11 -15.94 -16.58 -1.00 -1.23 0.01 0.42 2.78 2.10 -1.172014.2 -4.10 -0.31 -6.96 -14.61 -16.73 -0.98 -1.17 -0.13 0.36 2.80 1.86 -1.652014.3 -3.83 -0.42 -6.82 -13.31 -16.74 -0.99 -1.10 -0.22 0.28 2.81 1.63 -2.172014.4 -3.59 -0.48 -6.68 -12.08 -16.63 -1.00 -1.02 -0.28 0.19 2.80 1.42 -2.702015.1 -3.40 -0.51 -6.55 -10.95 -16.40 -1.20 -0.94 -0.34 -0.09 2.80 1.24 -3.232015.2 -3.24 -0.51 -6.43 -9.91 -16.12 -1.25 -0.87 -0.37 -0.21 2.77 1.09 -3.772015.3 -3.10 -0.50 -6.33 -8.96 -15.79 -1.31 -0.80 -0.37 -0.34 2.73 0.96 -4.312015.4 -2.99 -0.46 -6.25 -8.11 -15.43 -1.39 -0.74 -0.36 -0.47 2.70 0.85 -4.852016.1 -2.91 -0.43 -6.17 -7.34 -15.05 -1.59 -0.70 -0.38 -0.80 2.69 0.77 -5.382016.2 -2.85 -0.39 -6.11 -6.64 -14.66 -1.68 -0.67 -0.36 -0.92 2.64 0.71 -5.902016.3 -2.80 -0.35 -6.07 -6.02 -14.28 -1.77 -0.64 -0.34 -1.03 2.60 0.66 -6.412016.4 -2.76 -0.30 -6.03 -5.45 -13.92 -1.86 -0.61 -0.32 -1.13 2.55 0.62 -6.922017.1 -2.74 -0.27 -6.00 -4.95 -13.56 -2.02 -0.61 -0.33 -1.37 2.55 0.60 -7.402017.2 -2.72 -0.23 -5.98 -4.49 -13.23 -2.11 -0.60 -0.31 -1.45 2.50 0.59 -7.872017.3 -2.70 -0.20 -5.96 -4.08 -12.93 -2.19 -0.60 -0.29 -1.52 2.46 0.58 -8.342017.4 -2.69 -0.17 -5.95 -3.72 -12.65 -2.27 -0.59 -0.28 -1.57 2.42 0.57 -8.802018.1 -2.69 -0.14 -5.94 -3.39 -12.39 -2.37 -0.60 -0.28 -1.69 2.43 0.57 -9.252018.2 -2.68 -0.12 -5.93 -3.10 -12.15 -2.43 -0.60 -0.27 -1.72 2.39 0.56 -9.692018.3 -2.68 -0.10 -5.93 -2.84 -11.94 -2.48 -0.60 -0.25 -1.75 2.36 0.56 -10.132018.4 -2.67 -0.08 -5.93 -2.61 -11.76 -2.53 -0.60 -0.24 -1.76 2.34 0.56 -10.562019.1 -2.67 -0.06 -5.92 -2.41 -11.60 -2.57 -0.60 -0.23 -1.77 2.35 0.56 -10.992019.2 -2.67 -0.04 -5.93 -2.23 -11.46 -2.60 -0.60 -0.22 -1.77 2.34 0.56 -11.412019.3 -2.66 -0.03 -5.93 -2.09 -11.34 -2.63 -0.60 -0.21 -1.75 2.32 0.56 -11.832019.4 -2.66 -0.01 -5.93 -1.96 -11.23 -2.64 -0.60 -0.19 -1.74 2.31 0.55 -12.252020.1 -2.65 0.01 -5.93 -1.87 -11.15 -2.64 -0.60 -0.17 -1.67 2.33 0.55 -12.672020.2 -2.65 0.03 -5.94 -1.79 -11.08 -2.64 -0.59 -0.15 -1.63 2.33 0.55 -13.082020.3 -2.64 0.05 -5.94 -1.73 -11.03 -2.64 -0.59 -0.13 -1.60 2.33 0.54 -13.492020.4 -2.64 0.07 -5.95 -1.69 -10.99 -2.63 -0.59 -0.11 -1.56 2.33 0.54 -13.90


Chapter 8

“Estimated Effects of a YuanAppreciation”

This chapter presents two of the experiments in Fair (2010a), “Estimated Macroe-conomic Effects of a Chinese Yuan Appreciation.” The first experiment is the onein Table 1 of the paper, and the second experiment is the one in Table 4. If you dothe following experiments using the MCE model on the website, you will exactlyduplicate the results in this paper. This will not be true for the MCH model sincethe MCE and MCH models differ somewhat.

85

86 CHAPTER 8. “ESTIMATED EFFECTS OF A YUAN APPRECIATION”

8.1 Yuan Appreciation: Full Version of the Model

Table 8.1a presents selected results for the United States, and Table 8.1b presentsselected results for China. If you use the MCH model for this experiment, you willduplicate the results in this table.




4. Click “Change exogenous variables” and ask to changeCHE for China. Askto multiply each of the existing values by .75. Hit Enter and then “Committo Changes.”


The differences between the new forecast values and the base values are theestimated effects of the yuan appreciation. (Remember that a decrease in CHE isan appreciation of the yuan.)

8.1. YUAN APPRECIATION: FULL VERSION OF THE MODEL 87




1999.1 -0.01 0.05 -0.03 -0.04 -0.10 -0.02 0.04 0.17 0.98 -0.13 0.00 -0.011999.2 -0.03 0.08 -0.06 -0.09 -0.19 -0.03 0.06 0.19 0.93 -0.11 0.01 -0.011999.3 -0.05 0.11 -0.09 -0.13 -0.27 -0.03 0.04 0.23 0.94 -0.10 0.01 0.001999.4 -0.06 0.14 -0.11 -0.17 -0.33 -0.04 0.03 0.24 0.92 -0.09 0.02 0.002000.1 -0.07 0.15 -0.12 -0.20 -0.38 -0.04 0.03 0.25 0.82 -0.06 0.03 0.012000.2 -0.07 0.17 -0.13 -0.21 -0.43 -0.06 0.02 0.26 0.80 -0.05 0.03 0.012000.3 -0.07 0.19 -0.14 -0.23 -0.46 -0.07 0.02 0.27 0.79 -0.03 0.03 0.022000.4 -0.08 0.20 -0.15 -0.24 -0.48 -0.08 0.02 0.28 0.74 -0.02 0.04 0.022001.1 -0.07 0.21 -0.15 -0.24 -0.50 -0.07 0.01 0.28 0.72 -0.01 0.03 0.032001.2 -0.07 0.22 -0.15 -0.24 -0.51 -0.06 0.01 0.29 0.72 -0.01 0.03 0.032001.3 -0.07 0.23 -0.15 -0.24 -0.52 -0.06 0.01 0.30 0.75 0.00 0.03 0.042001.4 -0.07 0.24 -0.15 -0.24 -0.53 -0.06 0.01 0.32 0.76 0.00 0.03 0.042002.1 -0.06 0.25 -0.15 -0.24 -0.54 -0.03 0.01 0.32 0.78 0.00 0.03 0.042002.2 -0.06 0.26 -0.15 -0.23 -0.54 -0.05 0.01 0.34 0.78 0.00 0.03 0.052002.3 -0.06 0.28 -0.15 -0.22 -0.55 -0.04 0.02 0.35 0.82 0.00 0.03 0.052002.4 -0.06 0.29 -0.16 -0.21 -0.56 -0.04 0.02 0.37 0.85 -0.01 0.03 0.052003.1 -0.06 0.30 -0.16 -0.20 -0.56 -0.07 0.02 0.38 0.88 -0.01 0.03 0.062003.2 -0.06 0.32 -0.16 -0.20 -0.57 -0.05 0.02 0.40 0.92 -0.01 0.03 0.062003.3 -0.06 0.33 -0.17 -0.19 -0.58 -0.06 0.02 0.42 0.96 -0.01 0.03 0.062003.4 -0.06 0.35 -0.17 -0.19 -0.60 -0.08 0.02 0.44 1.02 -0.03 0.03 0.062004.1 -0.07 0.37 -0.18 -0.20 -0.61 -0.11 0.02 0.46 1.02 -0.02 0.03 0.072004.2 -0.06 0.38 -0.18 -0.19 -0.62 -0.06 0.02 0.48 1.05 -0.02 0.03 0.072004.3 -0.06 0.40 -0.19 -0.19 -0.63 -0.05 0.02 0.49 1.06 -0.01 0.03 0.072004.4 -0.06 0.41 -0.19 -0.18 -0.65 -0.02 0.03 0.52 1.16 -0.02 0.03 0.072005.1 -0.06 0.43 -0.20 -0.18 -0.67 -0.06 0.03 0.54 1.19 -0.03 0.03 0.072005.2 -0.07 0.45 -0.21 -0.18 -0.68 -0.10 0.03 0.56 1.21 -0.03 0.03 0.082005.3 -0.08 0.47 -0.21 -0.18 -0.70 -0.12 0.02 0.58 1.21 -0.02 0.03 0.082005.4 -0.08 0.48 -0.22 -0.18 -0.71 -0.12 0.02 0.59 1.23 -0.03 0.03 0.092006.1 -0.07 0.50 -0.22 -0.18 -0.73 -0.06 0.03 0.62 1.29 -0.03 0.03 0.092006.2 -0.07 0.52 -0.23 -0.18 -0.74 -0.04 0.03 0.64 1.31 -0.02 0.03 0.092006.3 -0.06 0.54 -0.23 -0.17 -0.75 -0.03 0.03 0.66 1.34 -0.02 0.03 0.102006.4 -0.06 0.56 -0.24 -0.18 -0.77 -0.02 0.03 0.68 1.42 -0.04 0.03 0.102007.1 -0.06 0.58 -0.25 -0.17 -0.80 0.03 0.04 0.71 1.49 -0.03 0.03 0.102007.2 -0.06 0.60 -0.25 -0.16 -0.81 0.03 0.04 0.74 1.48 -0.02 0.03 0.102007.3 -0.06 0.62 -0.26 -0.16 -0.83 0.03 0.03 0.76 1.51 -0.01 0.03 0.112007.4 -0.07 0.64 -0.26 -0.16 -0.84 -0.03 0.03 0.78 1.51 -0.02 0.03 0.112008.1 -0.07 0.66 -0.27 -0.16 -0.85 0.03 0.03 0.80 1.54 0.00 0.03 0.112008.2 -0.07 0.68 -0.27 -0.16 -0.86 0.03 0.03 0.82 1.55 0.01 0.03 0.122008.3 -0.06 0.69 -0.28 -0.15 -0.87 0.09 0.03 0.84 1.57 0.02 0.03 0.122008.4 -0.06 0.71 -0.29 -0.16 -0.89 0.09 0.03 0.86 1.62 0.00 0.03 0.14



Table 8.1bResults for China


qtr Y PY C I IM EX RS none PX PM SPCT none

1999 -0.68 -0.26 -0.21 -0.44 -0.15 -2.09 0.00 0.00 -13.40 -24.87 1.69 99.002000 -1.66 -6.04 -0.63 -1.27 -0.54 -4.13 0.00 0.00 -15.94 -24.86 1.32 99.002001 -2.36 -9.33 -1.11 -2.10 -1.07 -5.57 0.00 0.00 -17.41 -24.84 0.87 99.002002 -3.10 -11.35 -1.64 -2.94 -1.72 -6.54 0.00 0.00 -18.31 -24.81 0.62 99.002003 -4.02 -12.75 -2.24 -3.91 -2.51 -7.43 0.00 0.00 -18.92 -24.77 0.65 99.002004 -4.75 -13.77 -2.84 -4.81 -3.36 -7.96 0.00 0.00 -19.35 -24.73 0.74 99.002005 -5.17 -14.46 -3.35 -5.47 -4.13 -8.05 0.00 0.00 -19.63 -24.70 0.59 99.002006 -5.55 -14.96 -3.77 -6.02 -4.82 -8.50 0.00 0.00 -19.82 -24.65 0.34 99.002007 -5.79 -15.31 -4.11 -6.41 -5.39 -8.86 0.00 0.00 -19.92 -24.60 0.26 99.002008 -6.08 -15.59 -4.41 -6.77 -5.92 -9.69 0.00 0.00 -20.01 -24.57 0.32 99.00

• percentage deviations for all but RS and SPCT; absolute deviations for these.• Y = real GDP, PY = GDP deflator, C = total consumption, I = total fixed investment,IM = total imports, EX = total exports, RS = three-month Treasury bill rate,PX = export price index, PM = import price index, SPCT = current account as apercent of GDP.

8.2. YUAN APPRECIATION: CHINESE PY EQUATION DROPPED 89

8.2 Yuan Appreciation: Chinese PY Equation Dropped

Table 8.2a presents selected results for the United States, and Table 8.2b presentsselected results for China. If you use the MCH model for this experiment, you willduplicate the results in this table.




4. Click “Drop or add equations,” click China, and uncheck the CHPY box.

5. Click “Change exogenous variables” and ask to changeCHE for China. Askto multiply each of the existing values by .75. Hit Enter and then “Committo Changes.”


The differences between the new forecast values and the base values are theestimated effects of the yuan appreciation with the Chinese PY equation dropped.





1999.1 -0.01 0.05 -0.03 -0.04 -0.10 -0.02 0.05 0.17 0.99 -0.13 0.00 -0.011999.2 -0.03 0.08 -0.06 -0.09 -0.19 -0.03 0.06 0.19 0.94 -0.11 0.01 -0.011999.3 -0.05 0.11 -0.09 -0.13 -0.27 -0.03 0.04 0.23 0.95 -0.10 0.01 0.001999.4 -0.06 0.14 -0.11 -0.18 -0.34 -0.04 0.03 0.24 0.93 -0.09 0.02 0.002000.1 -0.07 0.17 -0.13 -0.21 -0.41 -0.05 0.04 0.29 1.06 -0.09 0.03 0.002000.2 -0.08 0.19 -0.15 -0.23 -0.47 -0.07 0.04 0.31 1.03 -0.08 0.03 0.012000.3 -0.09 0.21 -0.17 -0.26 -0.53 -0.08 0.03 0.33 1.01 -0.06 0.04 0.022000.4 -0.09 0.23 -0.18 -0.28 -0.57 -0.10 0.02 0.34 0.95 -0.04 0.04 0.032001.1 -0.09 0.25 -0.19 -0.30 -0.61 -0.09 0.03 0.37 1.09 -0.05 0.04 0.032001.2 -0.10 0.27 -0.20 -0.31 -0.65 -0.09 0.03 0.39 1.08 -0.04 0.04 0.042001.3 -0.10 0.29 -0.20 -0.33 -0.69 -0.08 0.03 0.41 1.13 -0.03 0.04 0.052001.4 -0.10 0.31 -0.21 -0.34 -0.72 -0.09 0.02 0.43 1.14 -0.02 0.05 0.052002.1 -0.10 0.34 -0.22 -0.36 -0.76 -0.07 0.03 0.47 1.32 -0.04 0.05 0.052002.2 -0.10 0.36 -0.23 -0.36 -0.79 -0.10 0.03 0.50 1.31 -0.04 0.05 0.062002.3 -0.10 0.39 -0.24 -0.37 -0.83 -0.10 0.03 0.53 1.37 -0.04 0.05 0.072002.4 -0.10 0.42 -0.25 -0.37 -0.86 -0.10 0.03 0.56 1.42 -0.04 0.05 0.072003.1 -0.11 0.45 -0.26 -0.38 -0.90 -0.14 0.04 0.61 1.59 -0.06 0.05 0.082003.2 -0.12 0.48 -0.27 -0.39 -0.95 -0.13 0.04 0.64 1.66 -0.06 0.05 0.082003.3 -0.12 0.51 -0.29 -0.39 -0.99 -0.15 0.04 0.68 1.72 -0.05 0.05 0.092003.4 -0.13 0.55 -0.30 -0.40 -1.03 -0.19 0.04 0.72 1.82 -0.07 0.06 0.102004.1 -0.14 0.58 -0.32 -0.43 -1.09 -0.25 0.05 0.77 1.94 -0.08 0.06 0.102004.2 -0.14 0.62 -0.34 -0.43 -1.13 -0.19 0.05 0.81 1.99 -0.07 0.06 0.112004.3 -0.14 0.65 -0.35 -0.43 -1.18 -0.18 0.05 0.84 2.01 -0.05 0.06 0.112004.4 -0.14 0.69 -0.37 -0.44 -1.23 -0.15 0.05 0.90 2.18 -0.08 0.06 0.122005.1 -0.15 0.74 -0.39 -0.44 -1.29 -0.23 0.06 0.96 2.35 -0.10 0.06 0.132005.2 -0.16 0.77 -0.41 -0.45 -1.34 -0.30 0.06 1.00 2.38 -0.10 0.07 0.142005.3 -0.17 0.81 -0.42 -0.46 -1.39 -0.33 0.05 1.04 2.38 -0.08 0.07 0.152005.4 -0.18 0.85 -0.43 -0.47 -1.43 -0.34 0.04 1.07 2.43 -0.09 0.07 0.162006.1 -0.18 0.89 -0.45 -0.47 -1.48 -0.29 0.05 1.14 2.65 -0.12 0.08 0.162006.2 -0.17 0.93 -0.47 -0.48 -1.53 -0.26 0.06 1.18 2.66 -0.09 0.08 0.172006.3 -0.17 0.97 -0.48 -0.49 -1.57 -0.26 0.06 1.23 2.73 -0.09 0.07 0.192006.4 -0.18 1.02 -0.50 -0.50 -1.63 -0.25 0.06 1.28 2.90 -0.12 0.08 0.202007.1 -0.18 1.07 -0.52 -0.52 -1.69 -0.21 0.07 1.36 3.11 -0.13 0.08 0.202007.2 -0.18 1.12 -0.54 -0.51 -1.74 -0.22 0.07 1.41 3.08 -0.10 0.08 0.212007.3 -0.18 1.16 -0.55 -0.51 -1.79 -0.21 0.06 1.46 3.13 -0.08 0.08 0.222007.4 -0.20 1.21 -0.56 -0.51 -1.83 -0.29 0.06 1.50 3.14 -0.08 0.08 0.232008.1 -0.20 1.25 -0.58 -0.53 -1.87 -0.25 0.05 1.56 3.24 -0.07 0.08 0.242008.2 -0.20 1.29 -0.59 -0.53 -1.90 -0.24 0.05 1.61 3.27 -0.03 0.08 0.262008.3 -0.19 1.34 -0.60 -0.53 -1.93 -0.14 0.06 1.66 3.33 -0.01 0.08 0.272008.4 -0.20 1.38 -0.62 -0.56 -1.98 -0.14 0.05 1.70 3.47 -0.05 0.09 0.31


8.2. YUAN APPRECIATION: CHINESE PY EQUATION DROPPED 91

Table 8.2bResults for China


qtr Y PY C I IM EX RS none PX PM SPCT none

1999 -0.68 0.00 -0.21 -0.44 -0.15 -2.11 0.00 0.00 -13.28 -24.87 1.70 99.002000 -1.82 0.00 -0.68 -1.38 -0.57 -4.56 0.00 0.00 -13.25 -24.82 1.63 99.002001 -2.81 0.00 -1.28 -2.43 -1.21 -6.71 0.00 0.00 -13.21 -24.77 1.30 99.002002 -3.96 0.00 -2.01 -3.64 -2.05 -8.51 0.00 0.00 -13.16 -24.71 1.02 99.002003 -5.49 0.00 -2.93 -5.17 -3.18 -10.32 0.00 0.00 -13.08 -24.62 1.10 99.002004 -6.88 0.00 -3.93 -6.74 -4.51 -11.65 0.00 0.00 -12.99 -24.53 1.22 99.002005 -7.91 0.00 -4.87 -8.10 -5.82 -12.40 0.00 0.00 -12.89 -24.46 0.88 99.002006 -8.89 0.00 -5.75 -9.33 -7.10 -13.69 0.00 0.00 -12.78 -24.35 0.35 99.002007 -9.67 0.00 -6.54 -10.37 -8.29 -14.83 0.00 0.00 -12.65 -24.24 0.00 99.002008 -10.51 0.00 -7.30 -11.37 -9.45 -16.82 0.00 0.00 -12.53 -24.15 0.08 99.00

• percentage deviations for all but RS and SPCT; absolute deviations for these.• Y = real GDP, PY = GDP deflator, C = total consumption, I = total fixed investment,IM = total imports, EX = total exports, RS = three-month Treasury bill rate,PX = export price index, PM = import price index, SPCT = current account as apercent of GDP.

Chapter 9

“Estimated Effects of the U.S.Stimulus Bill”

This chapter presents the stimulus experiment in Fair (2010b), “Estimated Macroe-conomic Effects of the U.S. Stimulus Bill.” If you do the following experimentsusing the MCE model on the website, you will exactly duplicate the results in Table4 in this paper. This will not be true for the MCH model since the MCE and MCHmodels differ somewhat. The MCH model forecast is the baseline forecast for thisexperiment.

93

94 CHAPTER 9. “ESTIMATED EFFECTS OF THE U.S. STIMULUS BILL”

9.1 Stimulus Experiment





4. Click “Change exogenous variables” and ask to change TRGHQ for theUnited States. Then type in the following values in the “New-Base” boxes:

TRGHQ2009.2 -72.72009.3 -84.12009.4 -84.12010.1 -84.12010.2 -84.12010.3 -84.12010.4 -23.42011.1 -23.42011.2 -23.42011.3 -23.42011.4 -2.62012.1 -2.62012.2 -2.62012.3 -2.62012.4 -2.5

Then ask to change COG for the United States. Then type in the followingvalues in the “New-Base” boxes:

9.1. STIMULUS EXPERIMENT 95

COG2009.2 -5.02009.3 -7.02009.4 -6.92010.1 -6.92010.2 -6.92010.3 -6.82010.4 -7.32011.1 -7.22011.2 -7.22011.3 -7.12011.4 -5.52012.1 -5.42012.2 -5.42012.3 -5.32012.4 -3.6

Then click “Commit to Changes.”


The differences between the new forecast values and the base values are thenegative of the estimated effects of the stimulus bill. The new values are estimatesassuming no stimulus bill, and the base values are estimates assuming the stimulusbill (which is the actual situation since the bill passed). The signs are reversed inTable 4 of the paper; they are not reversed in Table 9.1.

96 CHAPTER 9. “ESTIMATED EFFECTS OF THE U.S. STIMULUS BILL”




2009.1 0.00 0.00 0.00 0.00 0.00 -0.01 0.00 0.00 0.00 0.00 0.00 0.002009.2 -0.60 0.01 -0.66 -1.78 -0.33 -0.01 -0.11 0.01 0.01 0.05 0.12 -0.322009.3 -1.40 -0.02 -1.33 -4.02 -0.97 0.00 -0.16 -0.01 0.02 0.14 0.37 -0.582009.4 -2.11 -0.12 -1.94 -6.33 -1.81 0.00 -0.06 -0.10 0.01 0.27 0.66 -0.802010.1 -2.62 -0.26 -2.43 -8.46 -2.78 -0.03 -0.11 -0.22 -0.06 0.43 0.96 -1.032010.2 -2.93 -0.47 -2.83 -9.99 -3.78 -0.02 -0.15 -0.41 -0.08 0.61 1.19 -1.232010.3 -3.08 -0.66 -3.14 -11.45 -4.78 0.00 -0.16 -0.58 -0.11 0.76 1.37 -1.532010.4 -2.76 -0.86 -2.84 -11.00 -5.46 0.02 -0.14 -0.76 -0.16 0.87 1.38 -1.622011.1 -2.25 -1.12 -2.54 -10.20 -5.85 -0.02 -0.13 -1.01 -0.36 0.97 1.29 -1.922011.2 -1.75 -1.26 -2.27 -8.91 -6.01 -0.01 -0.05 -1.14 -0.42 1.00 1.09 -2.302011.3 -1.32 -1.36 -2.01 -7.43 -5.97 -0.01 0.01 -1.24 -0.49 0.97 0.86 -2.562011.4 -0.82 -1.45 -1.58 -5.60 -5.70 -0.01 0.08 -1.33 -0.56 0.91 0.63 -2.762012.1 -0.39 -1.49 -1.20 -3.87 -5.24 -0.07 0.16 -1.39 -0.78 0.84 0.41 -3.002012.2 -0.09 -1.48 -0.89 -2.32 -4.68 -0.10 0.30 -1.39 -0.85 0.73 0.17 -3.172012.3 0.10 -1.44 -0.65 -1.06 -4.06 -0.13 0.43 -1.36 -0.92 0.61 -0.02 -3.312012.4 0.24 -1.38 -0.46 -0.08 -3.44 -0.18 0.51 -1.32 -0.98 0.51 -0.16 -3.402013.1 0.39 -1.31 -0.29 0.72 -2.81 -0.24 0.57 -1.28 -1.11 0.42 -0.27 -3.482013.2 0.45 -1.21 -0.17 1.30 -2.22 -0.29 0.62 -1.20 -1.15 0.32 -0.34 -3.512013.3 0.45 -1.12 -0.08 1.67 -1.68 -0.35 0.65 -1.13 -1.18 0.24 -0.38 -3.502013.4 0.40 -1.03 -0.03 1.90 -1.21 -0.40 0.65 -1.05 -1.19 0.16 -0.38 -3.462014.1 0.35 -0.95 0.00 2.01 -0.80 -0.44 0.63 -0.99 -1.19 0.10 -0.36 -3.392014.2 0.28 -0.88 0.01 2.04 -0.47 -0.49 0.59 -0.92 -1.18 0.05 -0.32 -3.312014.3 0.22 -0.82 0.01 2.01 -0.19 -0.53 0.55 -0.87 -1.16 0.00 -0.28 -3.222014.4 0.17 -0.77 0.01 1.95 0.02 -0.56 0.51 -0.82 -1.13 -0.04 -0.23 -3.122015.1 0.12 -0.72 -0.01 1.87 0.17 -0.55 0.47 -0.77 -1.03 -0.08 -0.19 -3.022015.2 0.08 -0.69 -0.02 1.79 0.29 -0.57 0.43 -0.74 -1.00 -0.10 -0.15 -2.912015.3 0.05 -0.66 -0.04 1.70 0.37 -0.58 0.39 -0.71 -0.96 -0.12 -0.11 -2.812015.4 0.02 -0.64 -0.05 1.62 0.42 -0.58 0.35 -0.68 -0.92 -0.13 -0.09 -2.702016.1 0.01 -0.61 -0.06 1.55 0.44 -0.55 0.33 -0.65 -0.79 -0.15 -0.06 -2.612016.2 -0.01 -0.60 -0.08 1.47 0.44 -0.54 0.30 -0.62 -0.75 -0.16 -0.05 -2.522016.3 -0.02 -0.58 -0.08 1.40 0.44 -0.52 0.28 -0.61 -0.71 -0.16 -0.03 -2.432016.4 -0.03 -0.56 -0.09 1.34 0.42 -0.51 0.26 -0.59 -0.66 -0.16 -0.02 -2.352017.1 -0.03 -0.55 -0.10 1.28 0.39 -0.46 0.24 -0.56 -0.55 -0.16 -0.02 -2.272017.2 -0.03 -0.53 -0.10 1.22 0.36 -0.44 0.23 -0.54 -0.51 -0.16 -0.01 -2.202017.3 -0.03 -0.52 -0.11 1.16 0.33 -0.41 0.22 -0.52 -0.48 -0.15 -0.01 -2.132017.4 -0.03 -0.50 -0.11 1.10 0.30 -0.39 0.20 -0.50 -0.44 -0.15 -0.01 -2.062018.1 -0.03 -0.48 -0.11 1.04 0.27 -0.34 0.20 -0.48 -0.35 -0.15 -0.01 -2.002018.2 -0.02 -0.46 -0.11 0.98 0.23 -0.31 0.19 -0.46 -0.33 -0.14 -0.01 -1.942018.3 -0.02 -0.45 -0.11 0.92 0.20 -0.29 0.18 -0.44 -0.30 -0.13 -0.01 -1.892018.4 -0.02 -0.43 -0.11 0.87 0.17 -0.26 0.17 -0.42 -0.28 -0.12 -0.01 -1.832019.1 -0.02 -0.41 -0.11 0.81 0.14 -0.23 0.17 -0.40 -0.21 -0.11 -0.01 -1.792019.2 -0.02 -0.39 -0.11 0.75 0.11 -0.20 0.16 -0.38 -0.19 -0.10 -0.01 -1.742019.3 -0.02 -0.37 -0.11 0.69 0.08 -0.18 0.16 -0.36 -0.18 -0.09 -0.01 -1.692019.4 -0.02 -0.35 -0.11 0.63 0.05 -0.16 0.15 -0.34 -0.16 -0.08 -0.01 -1.642020.1 -0.02 -0.34 -0.10 0.57 0.03 -0.14 0.14 -0.32 -0.12 -0.08 -0.01 -1.602020.2 -0.02 -0.32 -0.10 0.51 0.00 -0.12 0.14 -0.30 -0.11 -0.07 0.00 -1.562020.3 -0.02 -0.30 -0.10 0.45 -0.02 -0.11 0.13 -0.29 -0.10 -0.06 0.00 -1.522020.4 -0.02 -0.29 -0.10 0.40 -0.04 -0.09 0.13 -0.27 -0.09 -0.05 0.00 -1.48


Chapter 10

“Is Fiscal Stimulus a Good Idea?”

This chapter presents results in Fair (2012b), “Is Fiscal Stimulus a Good Idea?” Ifyou do the following experiments using the MCH model on the website, you willexactly duplicate the results in this paper.

97

98 CHAPTER 10. “IS FISCAL STIMULUS A GOOD IDEA?”

10.1 Table 1: Transfer Payment Multipliers

This experiment is the one used for the results in Table 1 in the paper. Table 10.1presents selected results for the United States from this experiment.



3. Click “Examine the results without solving the model.” List the values ofY S,PSI13, JG, HG, JM , HM , JS, HS, and STATP for 1992:1–2005:4.Compute for each quarter:

GDPRS = Y S +PSI13(JG ·HG+ JM ·HM + JS ·HS) + STATP

Then take 1.0 percent of each of the values of GDPRS, and call them the“TRGHQ increases.” Then return to the main menu page.




10.1. TABLE 1: TRANSFER PAYMENT MULTIPLIERS 99




1992.1 0.22 0.03 0.31 0.79 0.16 0.00 0.04 0.03 -0.01 -0.01 -0.05 0.141992.2 0.51 0.11 0.57 1.59 0.42 -0.01 0.13 0.09 -0.02 -0.03 -0.14 0.201992.3 0.77 0.20 0.79 2.39 0.76 -0.01 0.25 0.17 -0.03 -0.06 -0.25 0.241992.4 0.96 0.29 0.95 3.03 1.13 -0.03 0.36 0.24 -0.04 -0.09 -0.36 0.301993.1 1.09 0.39 1.09 3.66 1.52 -0.04 0.45 0.32 -0.07 -0.12 -0.44 0.381993.2 1.16 0.49 1.19 4.06 1.90 -0.06 0.52 0.40 -0.07 -0.16 -0.51 0.491993.3 1.19 0.60 1.26 4.27 2.25 -0.08 0.58 0.50 -0.07 -0.18 -0.55 0.621993.4 1.17 0.68 1.31 4.22 2.56 -0.10 0.62 0.57 -0.06 -0.22 -0.56 0.781994.1 1.14 0.74 1.34 4.15 2.81 -0.11 0.64 0.62 -0.04 -0.24 -0.57 0.991994.2 1.09 0.81 1.37 3.95 3.02 -0.12 0.63 0.68 -0.01 -0.28 -0.53 1.191994.3 1.03 0.86 1.37 3.77 3.18 -0.13 0.61 0.73 0.03 -0.31 -0.49 1.431994.4 0.97 0.90 1.37 3.52 3.29 -0.13 0.61 0.76 0.08 -0.33 -0.48 1.671995.1 0.92 0.93 1.37 3.27 3.36 -0.12 0.59 0.80 0.15 -0.35 -0.43 1.941995.2 0.88 0.95 1.36 3.07 3.40 -0.12 0.55 0.83 0.19 -0.36 -0.38 2.211995.3 0.85 0.95 1.36 2.81 3.42 -0.10 0.53 0.83 0.25 -0.36 -0.35 2.481995.4 0.83 0.98 1.36 2.57 3.41 -0.10 0.52 0.86 0.31 -0.37 -0.34 2.761996.1 0.81 0.99 1.36 2.33 3.38 -0.07 0.50 0.88 0.40 -0.38 -0.31 3.031996.2 0.79 1.00 1.36 2.10 3.35 -0.06 0.49 0.90 0.45 -0.38 -0.30 3.281996.3 0.78 1.02 1.37 1.93 3.31 -0.04 0.49 0.92 0.49 -0.38 -0.30 3.551996.4 0.76 1.03 1.37 1.78 3.26 -0.02 0.47 0.94 0.53 -0.38 -0.29 3.811997.1 0.75 1.04 1.37 1.62 3.21 0.00 0.45 0.96 0.63 -0.39 -0.28 4.091997.2 0.73 1.06 1.38 1.48 3.17 0.01 0.45 0.98 0.65 -0.38 -0.28 4.341997.3 0.72 1.08 1.39 1.35 3.12 0.03 0.45 1.00 0.69 -0.38 -0.28 4.611997.4 0.72 1.09 1.40 1.24 3.08 0.05 0.44 1.01 0.73 -0.38 -0.27 4.891998.1 0.72 1.11 1.41 1.15 3.04 0.08 0.42 1.04 0.80 -0.37 -0.26 5.171998.2 0.72 1.12 1.42 1.07 3.01 0.10 0.41 1.05 0.80 -0.36 -0.26 5.441998.3 0.73 1.13 1.43 1.01 2.98 0.10 0.41 1.07 0.82 -0.35 -0.26 5.691998.4 0.73 1.15 1.44 0.96 2.96 0.13 0.42 1.08 0.84 -0.35 -0.26 5.911999.1 0.74 1.16 1.46 0.92 2.95 0.16 0.43 1.07 0.79 -0.34 -0.28 6.171999.2 0.74 1.18 1.47 0.88 2.95 0.17 0.42 1.09 0.79 -0.35 -0.27 6.441999.3 0.73 1.19 1.48 0.83 2.94 0.17 0.40 1.10 0.78 -0.36 -0.26 6.681999.4 0.73 1.20 1.49 0.79 2.95 0.19 0.40 1.11 0.79 -0.37 -0.27 6.882000.1 0.73 1.21 1.49 0.76 2.94 0.20 0.39 1.12 0.82 -0.40 -0.25 7.152000.2 0.72 1.21 1.51 0.74 2.95 0.19 0.38 1.13 0.81 -0.40 -0.25 7.332000.3 0.72 1.22 1.52 0.73 2.95 0.18 0.37 1.14 0.81 -0.42 -0.25 7.642000.4 0.72 1.23 1.53 0.71 2.96 0.17 0.38 1.15 0.82 -0.42 -0.27 7.91


Table 10.1 (continued)


2001.1 0.73 1.24 1.54 0.68 2.97 0.18 0.39 1.16 0.82 -0.41 -0.27 8.232001.2 0.74 1.25 1.54 0.65 2.98 0.19 0.39 1.16 0.83 -0.38 -0.27 8.492001.3 0.76 1.26 1.55 0.66 2.99 0.20 0.40 1.17 0.81 -0.36 -0.28 8.842001.4 0.77 1.27 1.55 0.65 3.01 0.18 0.40 1.18 0.80 -0.35 -0.28 9.112002.1 0.77 1.28 1.55 0.63 3.02 0.20 0.41 1.18 0.78 -0.34 -0.30 9.352002.2 0.76 1.29 1.56 0.61 3.03 0.21 0.41 1.19 0.76 -0.36 -0.30 9.622002.3 0.74 1.30 1.55 0.56 3.05 0.20 0.41 1.19 0.73 -0.37 -0.30 9.902002.4 0.72 1.30 1.56 0.52 3.06 0.20 0.40 1.20 0.72 -0.37 -0.29 10.202003.1 0.72 1.30 1.56 0.47 3.07 0.22 0.40 1.19 0.69 -0.37 -0.29 10.462003.2 0.72 1.31 1.56 0.45 3.07 0.20 0.40 1.19 0.68 -0.37 -0.30 10.672003.3 0.71 1.31 1.56 0.43 3.08 0.19 0.39 1.19 0.68 -0.37 -0.28 10.782003.4 0.70 1.31 1.57 0.41 3.08 0.18 0.38 1.19 0.66 -0.37 -0.29 10.972004.1 0.70 1.31 1.58 0.42 3.09 0.19 0.39 1.19 0.65 -0.39 -0.29 11.162004.2 0.70 1.31 1.59 0.41 3.10 0.19 0.38 1.19 0.65 -0.41 -0.29 11.342004.3 0.69 1.31 1.59 0.42 3.11 0.18 0.36 1.19 0.64 -0.42 -0.28 11.532004.4 0.69 1.30 1.60 0.44 3.12 0.16 0.35 1.19 0.62 -0.42 -0.28 11.702005.1 0.70 1.30 1.61 0.46 3.13 0.18 0.36 1.19 0.62 -0.43 -0.28 11.832005.2 0.71 1.30 1.62 0.50 3.15 0.16 0.37 1.19 0.61 -0.44 -0.30 12.062005.3 0.72 1.30 1.63 0.54 3.17 0.16 0.38 1.19 0.62 -0.45 -0.31 12.202005.4 0.74 1.31 1.66 0.59 3.20 0.14 0.37 1.20 0.63 -0.46 -0.31 12.41


10.2. TABLE 5: RESULTS FOR WAIT, RULE: 1992:1–2005:4 101

10.2 Table 5: Results for WAIT, RULE: 1992:1–2005:4




3. Click “Examine the results without solving the model.” List the values of Y Sfor 1992:1–2005:4. Then for 1992:1 take 0.5 percent of Y S, for 1992:2 take1.0 percent, for 1992:3 take 1.5 percent, for 1992:4–1993:4 take 2.0 percent,for 1998:1 take minus 0.5025 percent, for 1998:2 take minus 1.05 percent,for 1998:3 take minus 1.575 percent, and for 1998:4–1999:4 take minus2.1 percent. Call these the “TRGHQ changes.” Then return to the mainmenu page.


5. Click “Change exogenous variables” and ask to change TRGHQ for theUnited States. Type in the TRGHQ changes quarter by quarter. Be sure tosave the changes once you are done.






1992.1 0.10 0.01 0.14 0.35 0.07 0.00 0.02 0.01 -0.01 -0.01 -0.02 0.061992.2 0.32 0.06 0.40 1.05 0.26 0.00 0.08 0.05 -0.01 -0.02 -0.08 0.151992.3 0.66 0.15 0.74 2.11 0.59 -0.01 0.19 0.12 -0.02 -0.05 -0.19 0.251992.4 1.09 0.28 1.16 3.39 1.09 -0.02 0.35 0.23 -0.04 -0.09 -0.35 0.381993.1 1.48 0.43 1.51 4.69 1.70 -0.04 0.53 0.36 -0.07 -0.14 -0.53 0.491993.2 1.77 0.60 1.79 5.75 2.36 -0.06 0.70 0.50 -0.10 -0.20 -0.69 0.611993.3 1.96 0.81 2.00 6.56 3.02 -0.09 0.85 0.67 -0.10 -0.25 -0.83 0.771993.4 2.05 0.98 2.17 6.93 3.66 -0.13 0.96 0.82 -0.11 -0.31 -0.92 0.981994.1 1.67 1.04 1.72 5.97 3.96 -0.14 0.98 0.86 -0.09 -0.34 -0.89 1.061994.2 1.13 1.06 1.33 4.67 3.99 -0.16 0.85 0.89 -0.06 -0.36 -0.72 1.281994.3 0.60 1.02 1.00 3.34 3.81 -0.17 0.64 0.86 0.01 -0.36 -0.49 1.581994.4 0.18 0.95 0.72 1.96 3.47 -0.16 0.46 0.81 0.10 -0.35 -0.28 1.871995.1 -0.12 0.86 0.49 0.65 3.02 -0.14 0.29 0.76 0.25 -0.33 -0.07 2.161995.2 -0.32 0.76 0.30 -0.47 2.52 -0.11 0.12 0.68 0.32 -0.29 0.11 2.411995.3 -0.43 0.55 0.16 -1.33 2.00 -0.07 0.01 0.51 0.40 -0.25 0.22 2.661995.4 -0.48 0.51 0.07 -1.88 1.51 -0.05 -0.08 0.49 0.47 -0.20 0.29 2.791996.1 -0.47 0.44 0.01 -2.20 1.06 0.00 -0.13 0.44 0.58 -0.16 0.32 2.911996.2 -0.44 0.37 -0.03 -2.30 0.67 0.03 -0.16 0.39 0.61 -0.12 0.31 2.961996.3 -0.38 0.34 -0.04 -2.31 0.35 0.07 -0.17 0.37 0.62 -0.08 0.29 3.001996.4 -0.31 0.29 -0.04 -2.24 0.10 0.10 -0.16 0.32 0.62 -0.05 0.26 3.021997.1 -0.25 0.26 -0.03 -2.11 -0.09 0.12 -0.15 0.30 0.63 -0.02 0.22 3.031997.2 -0.18 0.24 -0.01 -1.94 -0.23 0.14 -0.13 0.28 0.60 0.00 0.17 3.031997.3 -0.13 0.22 0.02 -1.72 -0.32 0.16 -0.11 0.27 0.57 0.02 0.13 3.011997.4 -0.08 0.22 0.05 -1.56 -0.36 0.17 -0.09 0.26 0.54 0.03 0.09 3.011998.1 -0.14 0.20 -0.08 -1.65 -0.45 0.17 -0.09 0.24 0.49 0.05 0.08 2.941998.2 -0.34 0.17 -0.33 -2.02 -0.62 0.18 -0.13 0.20 0.44 0.07 0.11 2.841998.3 -0.67 0.11 -0.69 -2.69 -0.93 0.17 -0.22 0.15 0.41 0.11 0.21 2.671998.4 -1.07 0.01 -1.13 -3.57 -1.40 0.18 -0.37 0.06 0.39 0.17 0.35 2.451999.1 -1.44 -0.11 -1.49 -4.45 -1.96 0.17 -0.54 -0.05 0.35 0.24 0.52 2.261999.2 -1.70 -0.24 -1.77 -5.16 -2.55 0.17 -0.69 -0.15 0.33 0.32 0.66 2.031999.3 -1.85 -0.39 -1.99 -5.67 -3.14 0.17 -0.81 -0.28 0.31 0.40 0.77 1.751999.4 -1.91 -0.51 -2.15 -6.06 -3.70 0.17 -0.90 -0.39 0.27 0.49 0.84 1.412000.1 -1.49 -0.59 -1.66 -5.10 -3.92 0.15 -0.86 -0.47 0.18 0.55 0.75 1.352000.2 -0.91 -0.64 -1.24 -4.00 -3.87 0.13 -0.70 -0.52 0.10 0.55 0.57 1.152000.3 -0.38 -0.64 -0.88 -2.89 -3.63 0.11 -0.49 -0.53 0.00 0.55 0.33 0.932000.4 0.03 -0.59 -0.57 -1.78 -3.25 0.07 -0.32 -0.50 -0.10 0.50 0.13 0.73

10.2. TABLE 5: RESULTS FOR WAIT, RULE: 1992:1–2005:4 103

Table 10.2 (continued)


2001.1 0.31 -0.55 -0.32 -0.70 -2.76 0.02 -0.16 -0.49 -0.30 0.43 -0.07 0.572001.2 0.47 -0.43 -0.12 0.22 -2.23 -0.04 -0.03 -0.40 -0.41 0.35 -0.22 0.402001.3 0.55 -0.38 0.04 0.93 -1.69 -0.10 0.07 -0.36 -0.48 0.27 -0.31 0.292001.4 0.57 -0.31 0.14 1.49 -1.18 -0.16 0.13 -0.32 -0.55 0.19 -0.35 0.192002.1 0.56 -0.25 0.21 1.88 -0.71 -0.22 0.16 -0.28 -0.66 0.15 -0.36 0.122002.2 0.52 -0.19 0.26 2.08 -0.29 -0.28 0.18 -0.23 -0.69 0.10 -0.35 0.062002.3 0.46 -0.14 0.28 2.16 0.05 -0.33 0.19 -0.20 -0.70 0.05 -0.33 0.032002.4 0.40 -0.11 0.29 2.19 0.34 -0.39 0.18 -0.17 -0.70 0.00 -0.29 0.002003.1 0.34 -0.08 0.28 2.13 0.56 -0.43 0.17 -0.15 -0.69 -0.03 -0.26 -0.022003.2 0.28 -0.06 0.27 1.97 0.72 -0.45 0.16 -0.13 -0.66 -0.06 -0.22 -0.032003.3 0.22 -0.05 0.25 1.79 0.83 -0.48 0.14 -0.12 -0.64 -0.09 -0.18 -0.032003.4 0.17 -0.05 0.23 1.63 0.90 -0.49 0.12 -0.11 -0.59 -0.11 -0.14 -0.022004.1 0.12 -0.04 0.20 1.50 0.92 -0.48 0.11 -0.09 -0.49 -0.14 -0.11 -0.012004.2 0.08 -0.04 0.17 1.32 0.92 -0.48 0.09 -0.09 -0.45 -0.15 -0.08 0.002004.3 0.05 -0.05 0.15 1.17 0.89 -0.49 0.07 -0.09 -0.39 -0.16 -0.06 0.012004.4 0.02 -0.05 0.12 1.03 0.84 -0.46 0.06 -0.09 -0.34 -0.16 -0.04 0.032005.1 0.01 -0.05 0.10 0.90 0.78 -0.43 0.05 -0.08 -0.24 -0.17 -0.02 0.042005.2 -0.01 -0.06 0.08 0.79 0.71 -0.40 0.04 -0.07 -0.19 -0.16 -0.01 0.052005.3 -0.01 -0.06 0.06 0.70 0.64 -0.38 0.04 -0.07 -0.14 -0.16 -0.01 0.052005.4 -0.02 -0.06 0.04 0.63 0.57 -0.34 0.03 -0.07 -0.10 -0.15 0.00 0.06


Chapter 11

“What It Takes to Solve the U.S.Deficit Problem”

This chapter presents results in Fair (2012c), “What It Takes to Solve the U.S.Government Deficit Problem.” If you do the following experiments using the MCHmodel on the website, you will exactly duplicate the results in this paper.

105

106CHAPTER 11. “WHAT IT TAKES TO SOLVE THE U.S. DEFICIT PROBLEM”

11.1 Table 1: Transfer Payment Multipliers






Then take 1.0 percent of each of the values of GDPRS, and call them the“TRGHQ increases.” Then return to the main menu page.




11.1. TABLE 1: TRANSFER PAYMENT MULTIPLIERS 107




2013.1 0.22 -0.03 0.31 0.65 0.15 0.01 0.04 -0.02 -0.01 -0.03 -0.05 0.142013.2 0.50 -0.01 0.58 1.30 0.41 0.01 0.13 -0.01 -0.02 -0.07 -0.13 0.202013.3 0.74 0.03 0.80 1.88 0.74 0.00 0.23 0.02 -0.03 -0.12 -0.24 0.252013.4 0.90 0.08 0.97 2.36 1.10 -0.01 0.33 0.06 -0.04 -0.17 -0.33 0.342014.1 0.98 0.14 1.10 2.74 1.46 0.00 0.40 0.11 -0.07 -0.22 -0.40 0.452014.2 1.01 0.21 1.20 2.99 1.81 -0.01 0.45 0.16 -0.07 -0.28 -0.45 0.612014.3 1.00 0.27 1.26 3.11 2.13 -0.03 0.48 0.22 -0.07 -0.33 -0.47 0.792014.4 0.96 0.34 1.30 3.12 2.41 -0.04 0.49 0.27 -0.06 -0.37 -0.46 1.012015.1 0.91 0.40 1.32 3.04 2.63 -0.03 0.49 0.33 -0.03 -0.41 -0.44 1.232015.2 0.85 0.45 1.33 2.92 2.81 -0.04 0.48 0.38 -0.01 -0.44 -0.41 1.482015.3 0.79 0.49 1.32 2.76 2.94 -0.05 0.46 0.42 0.02 -0.46 -0.37 1.732015.4 0.74 0.53 1.32 2.60 3.03 -0.05 0.44 0.45 0.04 -0.48 -0.34 2.002016.1 0.70 0.56 1.30 2.42 3.08 -0.03 0.42 0.49 0.13 -0.51 -0.31 2.272016.2 0.66 0.59 1.29 2.25 3.10 -0.03 0.40 0.52 0.16 -0.52 -0.28 2.542016.3 0.62 0.61 1.28 2.09 3.10 -0.02 0.38 0.54 0.19 -0.52 -0.25 2.822016.4 0.60 0.63 1.27 1.94 3.09 -0.02 0.36 0.56 0.22 -0.53 -0.23 3.102017.1 0.58 0.64 1.27 1.79 3.06 0.02 0.34 0.58 0.30 -0.54 -0.21 3.372017.2 0.56 0.66 1.26 1.66 3.02 0.03 0.33 0.60 0.33 -0.54 -0.20 3.642017.3 0.55 0.67 1.26 1.54 2.97 0.04 0.32 0.61 0.36 -0.54 -0.19 3.922017.4 0.54 0.68 1.26 1.44 2.93 0.05 0.31 0.62 0.39 -0.53 -0.18 4.192018.1 0.54 0.69 1.26 1.34 2.88 0.08 0.31 0.64 0.45 -0.54 -0.18 4.452018.2 0.54 0.70 1.26 1.25 2.84 0.09 0.30 0.65 0.47 -0.54 -0.18 4.712018.3 0.54 0.71 1.27 1.18 2.80 0.10 0.30 0.66 0.48 -0.53 -0.18 4.982018.4 0.54 0.72 1.27 1.11 2.77 0.11 0.30 0.67 0.50 -0.53 -0.18 5.242019.1 0.54 0.73 1.28 1.04 2.74 0.13 0.30 0.69 0.53 -0.54 -0.18 5.492019.2 0.54 0.74 1.29 0.99 2.71 0.14 0.30 0.70 0.54 -0.53 -0.18 5.752019.3 0.54 0.75 1.30 0.94 2.69 0.14 0.30 0.71 0.55 -0.53 -0.19 6.002019.4 0.54 0.76 1.31 0.89 2.68 0.15 0.29 0.72 0.56 -0.53 -0.19 6.262020.1 0.55 0.78 1.32 0.85 2.66 0.16 0.30 0.73 0.57 -0.54 -0.19 6.512020.2 0.55 0.79 1.33 0.82 2.66 0.16 0.30 0.74 0.57 -0.54 -0.20 6.762020.3 0.55 0.80 1.34 0.79 2.66 0.16 0.30 0.75 0.58 -0.54 -0.20 7.012020.4 0.55 0.81 1.36 0.76 2.66 0.16 0.30 0.76 0.58 -0.54 -0.20 7.272021.1 0.55 0.82 1.37 0.74 2.66 0.16 0.30 0.77 0.57 -0.55 -0.20 7.522021.2 0.55 0.83 1.38 0.71 2.67 0.15 0.30 0.78 0.57 -0.55 -0.20 7.772021.3 0.55 0.84 1.39 0.69 2.68 0.15 0.29 0.79 0.57 -0.56 -0.21 8.022021.4 0.54 0.85 1.40 0.68 2.69 0.14 0.29 0.80 0.57 -0.56 -0.21 8.272022.1 0.54 0.86 1.42 0.66 2.71 0.14 0.29 0.81 0.55 -0.58 -0.21 8.522022.2 0.54 0.87 1.43 0.65 2.73 0.13 0.29 0.81 0.55 -0.58 -0.21 8.772022.3 0.54 0.88 1.44 0.64 2.74 0.12 0.29 0.82 0.55 -0.59 -0.21 9.022022.4 0.54 0.88 1.45 0.63 2.76 0.10 0.29 0.83 0.54 -0.60 -0.21 9.27



11.2 Table 2: Base Run

The base run in this paper is the MCH model forecast. You can examine this forecastby doing the following. Table 11.2 presents selected results for the United Statesfrom this forecast.



3. Click “Examine the results without solving the model”.

11.2. TABLE 2: BASE RUN 109




2007.1 1.24 3.26 4.98 -6.79 4.54 1.47 36.102007.2 1.74 3.06 4.74 -6.23 4.51 1.70 35.872007.3 2.47 2.63 4.30 -5.72 4.67 1.88 36.322007.4 2.21 2.66 3.39 -5.64 4.81 1.94 37.252008.1 1.61 2.14 2.04 -5.80 5.00 2.72 38.592008.2 1.04 2.08 1.63 -5.66 5.34 5.30 39.462008.3 -0.62 2.54 1.49 -5.72 6.04 4.44 40.952008.4 -3.32 2.19 0.30 -4.89 6.90 4.70 41.092009.1 -4.55 1.94 0.21 -2.94 8.30 7.16 43.942009.2 -5.03 1.19 0.17 -2.61 9.30 9.41 45.702009.3 -3.73 0.45 0.16 -3.00 9.65 9.38 45.712009.4 -0.54 0.59 0.06 -3.16 9.97 9.01 46.112010.1 2.17 0.59 0.11 -3.47 9.80 8.91 47.002010.2 3.30 1.09 0.15 -3.63 9.67 8.83 49.512010.3 3.51 1.37 0.16 -3.58 9.53 8.61 51.062010.4 3.14 1.55 0.14 -3.41 9.59 8.73 52.632011.1 2.24 1.85 0.13 -3.44 8.99 8.08 51.782011.2 1.63 2.10 0.05 -3.53 9.07 8.49 50.542011.3 1.46 2.39 0.02 -3.18 9.06 7.65 53.152011.4 1.61 2.18 0.01 -3.58 8.71 7.15 55.092012.1 2.08 1.88 0.07 -3.85 8.24 6.76 56.372012.2 2.71 1.81 0.25 -3.23 8.13 6.70 58.282012.3 3.51 1.87 0.44 -2.71 7.97 6.57 59.572012.4 4.16 2.37 0.65 -2.30 7.74 6.41 60.682013.1 4.86 2.81 0.91 -2.00 7.48 5.58 61.562013.2 5.04 3.08 1.18 -1.78 7.25 5.51 62.442013.3 4.87 3.28 1.43 -1.64 7.03 5.46 63.282013.4 4.55 3.46 1.65 -1.54 6.85 5.43 64.092014.1 4.34 3.58 1.87 -1.49 6.68 5.42 64.862014.2 4.20 3.69 2.08 -1.46 6.54 5.42 65.622014.3 4.08 3.78 2.27 -1.46 6.42 5.44 66.352014.4 3.96 3.85 2.44 -1.47 6.32 5.46 67.082015.1 3.84 3.90 2.60 -1.50 6.24 5.50 67.812015.2 3.72 3.93 2.74 -1.54 6.17 5.55 68.552015.3 3.61 3.94 2.86 -1.58 6.12 5.60 69.282015.4 3.51 3.94 2.96 -1.63 6.08 5.66 70.032016.1 3.42 3.93 3.05 -1.66 6.05 5.70 70.292016.2 3.34 3.90 3.13 -1.69 6.04 5.74 70.582016.3 3.27 3.87 3.19 -1.71 6.03 5.78 70.892016.4 3.21 3.83 3.25 -1.73 6.02 5.82 71.212017.1 3.16 3.79 3.29 -1.74 6.02 5.86 71.552017.2 3.12 3.75 3.33 -1.74 6.02 5.90 71.902017.3 3.09 3.71 3.36 -1.74 6.03 5.93 72.252017.4 3.07 3.66 3.38 -1.73 6.03 5.96 72.62


Table 11.2 (continued


2018.1 3.06 3.62 3.40 -1.71 6.04 5.98 72.992018.2 3.06 3.58 3.42 -1.68 6.04 6.01 73.372018.3 3.05 3.55 3.44 -1.65 6.04 6.02 73.742018.4 3.06 3.51 3.45 -1.61 6.04 6.04 74.122019.1 3.07 3.48 3.47 -1.57 6.04 6.05 74.492019.2 3.08 3.45 3.48 -1.52 6.03 6.05 74.862019.3 3.09 3.42 3.50 -1.47 6.03 6.06 75.222019.4 3.10 3.40 3.51 -1.42 6.02 6.06 75.582020.1 3.12 3.38 3.53 -1.36 6.00 6.05 75.922020.2 3.13 3.36 3.55 -1.30 5.99 6.05 76.262020.3 3.15 3.35 3.57 -1.24 5.97 6.04 76.582020.4 3.17 3.34 3.59 -1.18 5.95 6.03 76.902021.1 3.20 3.33 3.61 -1.11 5.93 6.01 77.192021.2 3.22 3.32 3.64 -1.05 5.90 6.00 77.482021.3 3.23 3.32 3.67 -0.99 5.88 5.98 77.762021.4 3.25 3.32 3.70 -0.93 5.85 5.97 78.022022.1 3.26 3.32 3.73 -0.87 5.82 5.95 78.272022.2 3.28 3.31 3.76 -0.81 5.79 5.93 78.502022.3 3.29 3.32 3.79 -0.75 5.76 5.91 78.732022.4 3.31 3.32 3.83 -0.69 5.72 5.89 78.93


11.3. TABLE 3: TRANSFER PAYMENT DECREASE OF TWO PERCENT OF GDP111

11.3 Table 3: Transfer Payment Decrease of Two Percentof GDP






Let DDD be 1/12 in 2013:1, 2/12 in 2013:2, 3/12 in 2013:4, ..., and 12/12from 2015:4 through 2022:4. Then take minus 2.0 percent of each of thevalues of DDD ·GDPRS, and call them the “TRGHQ decreases.” Thenreturn to the main menu page.


5. Click “Change exogenous variables” and ask to change TRGHQ for theUnited States. Type in the TRGHQ decreases quarter by quarter. Be sureto save the changes once you are done.






2013.1 -0.04 0.00 -0.05 -0.11 -0.03 0.00 -0.01 0.00 0.00 0.00 0.01 -0.022013.2 -0.12 0.01 -0.15 -0.32 -0.09 0.00 -0.03 0.01 0.01 0.02 0.03 -0.062013.3 -0.24 0.00 -0.28 -0.63 -0.22 0.00 -0.07 0.00 0.01 0.04 0.07 -0.102013.4 -0.39 -0.01 -0.45 -1.01 -0.40 0.00 -0.12 -0.01 0.02 0.07 0.13 -0.152014.1 -0.56 -0.03 -0.63 -1.44 -0.64 -0.01 -0.19 -0.02 0.05 0.10 0.19 -0.232014.2 -0.72 -0.07 -0.83 -1.92 -0.95 0.00 -0.26 -0.05 0.06 0.15 0.27 -0.322014.3 -0.89 -0.11 -1.04 -2.40 -1.30 0.01 -0.34 -0.08 0.07 0.20 0.35 -0.452014.4 -1.05 -0.17 -1.26 -2.89 -1.69 0.02 -0.43 -0.13 0.08 0.27 0.42 -0.622015.1 -1.20 -0.23 -1.48 -3.36 -2.12 0.01 -0.51 -0.18 0.09 0.33 0.50 -0.822015.2 -1.34 -0.31 -1.71 -3.81 -2.58 0.02 -0.59 -0.24 0.10 0.41 0.56 -1.062015.3 -1.47 -0.39 -1.93 -4.23 -3.06 0.04 -0.66 -0.31 0.09 0.49 0.63 -1.342015.4 -1.59 -0.47 -2.15 -4.63 -3.55 0.06 -0.73 -0.38 0.09 0.58 0.68 -1.672016.1 -1.67 -0.57 -2.32 -4.92 -4.02 0.03 -0.80 -0.47 0.06 0.66 0.73 -2.042016.2 -1.70 -0.67 -2.44 -5.09 -4.46 0.05 -0.84 -0.55 0.04 0.74 0.75 -2.442016.3 -1.68 -0.76 -2.52 -5.15 -4.84 0.07 -0.86 -0.64 0.01 0.81 0.75 -2.882016.4 -1.63 -0.85 -2.57 -5.11 -5.16 0.08 -0.87 -0.72 -0.02 0.88 0.73 -3.362017.1 -1.56 -0.93 -2.60 -4.99 -5.42 0.04 -0.86 -0.80 -0.13 0.94 0.70 -3.862017.2 -1.49 -1.01 -2.61 -4.81 -5.61 0.05 -0.84 -0.87 -0.17 0.99 0.66 -4.382017.3 -1.41 -1.07 -2.61 -4.58 -5.75 0.06 -0.81 -0.93 -0.22 1.02 0.61 -4.922017.4 -1.33 -1.13 -2.61 -4.32 -5.84 0.06 -0.78 -0.98 -0.28 1.05 0.57 -5.462018.1 -1.27 -1.17 -2.59 -4.06 -5.88 0.00 -0.75 -1.04 -0.42 1.09 0.52 -6.002018.2 -1.22 -1.21 -2.58 -3.79 -5.88 -0.01 -0.72 -1.08 -0.48 1.10 0.48 -6.552018.3 -1.17 -1.25 -2.57 -3.53 -5.86 -0.02 -0.69 -1.12 -0.53 1.11 0.45 -7.102018.4 -1.13 -1.28 -2.56 -3.29 -5.82 -0.03 -0.67 -1.15 -0.58 1.12 0.42 -7.642019.1 -1.11 -1.30 -2.55 -3.06 -5.76 -0.09 -0.65 -1.19 -0.72 1.14 0.40 -8.182019.2 -1.09 -1.33 -2.55 -2.84 -5.70 -0.11 -0.63 -1.22 -0.76 1.13 0.38 -8.712019.3 -1.07 -1.35 -2.55 -2.65 -5.63 -0.13 -0.61 -1.24 -0.81 1.13 0.37 -9.242019.4 -1.06 -1.37 -2.55 -2.47 -5.56 -0.14 -0.60 -1.27 -0.84 1.12 0.36 -9.772020.1 -1.05 -1.39 -2.56 -2.31 -5.49 -0.19 -0.59 -1.30 -0.93 1.13 0.36 -10.282020.2 -1.05 -1.41 -2.57 -2.16 -5.43 -0.21 -0.59 -1.32 -0.96 1.13 0.36 -10.802020.3 -1.05 -1.43 -2.58 -2.03 -5.37 -0.22 -0.58 -1.34 -0.99 1.12 0.36 -11.312020.4 -1.05 -1.45 -2.59 -1.91 -5.32 -0.23 -0.58 -1.36 -1.01 1.11 0.36 -11.812021.1 -1.05 -1.47 -2.61 -1.81 -5.28 -0.26 -0.58 -1.38 -1.05 1.12 0.37 -12.312021.2 -1.05 -1.49 -2.62 -1.72 -5.25 -0.27 -0.58 -1.40 -1.06 1.12 0.37 -12.812021.3 -1.05 -1.51 -2.64 -1.63 -5.22 -0.27 -0.57 -1.42 -1.07 1.12 0.37 -13.302021.4 -1.05 -1.53 -2.66 -1.56 -5.21 -0.27 -0.57 -1.44 -1.08 1.12 0.38 -13.792022.1 -1.05 -1.55 -2.68 -1.49 -5.20 -0.28 -0.57 -1.46 -1.08 1.13 0.38 -14.282022.2 -1.05 -1.57 -2.70 -1.44 -5.19 -0.27 -0.57 -1.47 -1.08 1.14 0.39 -14.762022.3 -1.05 -1.59 -2.72 -1.39 -5.20 -0.26 -0.57 -1.49 -1.08 1.14 0.39 -15.242022.4 -1.05 -1.61 -2.74 -1.34 -5.21 -0.25 -0.57 -1.50 -1.07 1.15 0.39 -15.73


Chapter 12

“How Should the Fed ReportUncertainty?”

Table 1 in Fair (2012d), “How Should the Fed Report Uncertainty?” uses the MCHmodel and stochastic simulation. If you download the MCH model for use on yourown computer, you can duplicate these results. If you want to do this, contact meand I will email you the extra Fair-Parke commands that are needed to do this.

113

114 CHAPTER 12. “HOW SHOULD THE FED REPORT UNCERTAINTY?”

Bibliography

[1] Fair, Ray C., 2004, Estimating How the Macroeconomy Works, CambridgeMA: Harvard University Press.

[2] ———, 2005, “Policy Effects in the Post Boom U.S. Economy,” Topics inMacroeconomics, Vol. 5, Iss. 1, Article 19.

[3] ———, 2007a, “A Comparison of Five Federal Reserve Chairmen: WasGreenspan the Best?” , The B.E. Journal of Macroeconomics, Vol. 7, Iss. 1(Contribution), Article 12.

[4] ———, 2007b, “Evaluating Inflation Targeting Using a MacroeconometricModel,” economics - The Open-Access, Open-Assessment E-Journal.

[5] ———, 2010a, “Estimated Macroeconomic Effects of a Chinese Yuan Ap-preciation,” Business Economics, October 2010, 233–243.

[6] ———, 2010b, “Estimated Macroeconomic Effects of the U.S. StimulusBill,” Contemporary Economic Policy, October 2010, 439–452.

[7] ———, 2011, “Possible Macroeconomic Consequences of Large FutureFederal Government Deficit,” NBER, Tax Policy and the Economy, Vol. 25,89–108.

[8] ———, 2012a, “Has Macro Progressed?” Journal of Macroeconomics, 34,2–10.

[9] ———, 2012b, “Is Fiscal Stimulus a Good Idea?” May.

[10] ———, 2012c, “What It Takes to Solve the U.S. Government Deficit Prob-lem,” May.

[11] ———, 2012d, “How Should the Fed Report Uncertainty?” June.

115

The MCH Model Workbook · 1.2. MCH MODEL 9 1.2 MCH Model The MCH model on the website is the latest...

Documents

Transcript of The MCH Model Workbook · 1.2. MCH MODEL 9 1.2 MCH Model The MCH model on the website is the latest...