Abstract
A monetary shock was examined briefly above in Chapter 3, subsection 3.5(a). There it was noted that although the long-run effect was the same as in the Dornbusch model (also discussed in that chapter, section 3.3), the dynamics in MM are a good deal more complicated. This chapter aims to examine the response of MM to an unanticipated, permanent, one per cent increase in the money supply in rather more detail than was possible in the synoptic account given in Chapter 3. As before, our starting point is the Dornbusch model (DBM). The features shared by MM and DBM are reviewed in section 26.2.
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Reference
This solution approach is an example of the shooting method. For a brief account of this and other methods for solving models under rational expectations, see Dixon, Parmenter, Powell and Wilcoxen (1992), Ch.5, pp. 334–345.
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© 1997 Springer-Verlag Berlin Heidelberg
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Powell, A.A., Murphy, C.W. (1997). Monetary Shocks. In: Inside a Modern Macroeconometric Model. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-59069-6_26
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DOI: https://doi.org/10.1007/978-3-642-59069-6_26
Publisher Name: Springer, Berlin, Heidelberg
Print ISBN: 978-3-642-63836-7
Online ISBN: 978-3-642-59069-6
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