In Your Intermediate Macroeconomics Course,government Expenditures and the Money Supply

question 24

Essay

In your intermediate macroeconomics course,government expenditures and the money supply were treated as exogenous,in the sense that the variables could be changed to conduct economic policy to influence target variables,but that these variables would not react to changes in the economy as a result of some fixed rule.The St.Louis Model,proposed by two researchers at the Federal Reserve in St.Louis,used this idea to test whether monetary policy or fiscal policy was more effective in influencing output behavior.Although there were various versions of this model,the basic specification was of the following type:
Δln(Yt)= β0 + β1Δln mt + ...+ βpΔln mt-p-1 + βp+1Δln Gt + ...+ βp+qΔln Gt-q-1 + ut
Assuming that money supply and government expenditures are exogenous,how would you estimate dynamic causal effects? Why do you think this type of model is no longer used by most to calculate fiscal and monetary multipliers?

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Definitions:

Null Hypothesis

A hypothesis that suggests there is no significant difference between specified populations, or no association among groups.

Null Hypothesis

A statistical hypothesis that assumes no effect or no difference in an experiment or study, serving as the default assumption to be tested.

Probability

Probability is the measure of the likelihood that an event will occur, expressed as a number between 0 and 1.

Statistic

A single measure, calculated from sample data, used to summarize a characteristic of the sample.