Consider the Impulse Response Functions Generated Using the Smets and Wouters

question 77

Essay

Consider the impulse response functions generated using the Smets and Wouters (2007) DSGE model, in response to a shock to productivity (TFP) and government expenditures as shown in Figures 15.8 and 15.9. The endogenous variables are consumption (c), inflation (pinf), labor supply (lab), and GDP (y). Briefly discuss the results of the simulations using macroeconomic theory.
Figure 15.8: Impulse Response Function to a Change in Productivity
Figure 15.9: Impulse Response Function to a Change in Government Spending

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Definitions:

Parent Entity

A business that controls one or more subsidiary companies.

Deferred Tax Asset

A financial item on a company's balance sheet that reduces future tax liabilities due to deductible temporary differences, losses, or credits.

Unrealised Profit

Profit that results from an increase in value of an asset that has not yet been sold and thus has not generated actual cash inflow.

Intragroup Sale

Transactions occurring between entities within the same group or conglomerate, often scrutinized for transfer pricing and tax implications.