Application of the IS-MP-IA model to the German economy and policy implications

Extending the IS-MP-IA model developed by Romer (2000) and applying the GARCH (Engle, 1982, 2001) methodology, the author finds that equilibrium GDP in Germany is positively affected by stock market performance and real exchange rate appreciation, and negatively influenced by the expected inflation rate, the government deficit/GDP ratio, and the U.S. federal funds rate. The relatively low deficit/GDP ratio of 1.83% in 2003 indicates that its fiscal condition was healthy. However, some other EU members may need to exercise fiscal discipline. Because real appreciation has a positive impact on output, a stronger euro may not be a concern for Germany but may be worried by those EU member nations which depend upon exports to stimulate their economies.

Impacts of Macroeconomic Variables on the U.S. Stock Market Index and Policy Implications

This paper finds that the U.S. stock market index is positively associated with real GDP, stock earnings, the trade-weighted nominal effective exchange rate, and the U.K. stock market index and negatively influenced by the government debt/GDP ratio, the M2/GDP ratio, the real Treasury bill rate, the real corporate bond yield, the expected inflation rate, and the U.K. Treasury bill rate. The choice of an appropriate exchange rate may affect empirical outcomes. Hence, we need more economic growth and better earnings to have higher stock prices. The rising government debt/GDP ratio is expected to hurt stock prices whereas the relatively low interest rate would help stock prices. A higher M2/GDP ratio reduces stock prices partly due to its potential impacts on inflation and interest rates. The recent depreciation of the U.S. dollar would work unfavorably to the U.S. stock market index.Stock market index, government debt or deficits, money supply, exchange rate, interest rate, foreign stock market

Tests of the functional form, the substitution effect, and the wealth effect of Mexico´s money demand function

M1, M2, and M3 demands in Mexico are positively influenced by output and stock prices and negatively associated with the saving rate, the U.S. interest rate, and the expected inflation rate. Peso depreciation affects M1 demand negatively and M2 and M3 demands positively. The log-linear form cannot be rejected for M1 demand and can be rejected for M2 and M3 demands, while the linear form can be rejected for M1, M2, and M3 demands. The CUSUMSQ test shows that M1, M2, and M3 demands are stable; while the CUSUM test indicates stability in M1 and M3 demands and instability in M2 demand.Box-Cox transformation, currency substitution, wealth effect,stability tests

Does More Government Deficit Lead to a Higher Long-term Interest Rate? Application of an Extended Loanable Funds Model to Estonia

Applying and extending the open-economy loanable funds model, this article shows that more government borrowing or debt as a percent of GDP leads to a higher government bond yield, that a higher real money market rate, a higher expected inflation rate, a higher EU government bond yield, or depreciation of the Estonian kroon (EEK) would increase the Estonian government bond yield, and that the negative coefficient of the percent change in real GDP has an unexpected sign. When the conventional closed-economy or openeconomy loanable funds model is considered, the article finds that more government borrowing as a percent of GDP does not result in a higher government bond yield, that the positive coefficients of the real money market rate, the growth rate of real GDP, and the expected inflation are significant at the 1%, 5% or 10% level, and that the negative coefficient of the ratio of the net capital inflow to GDP in the conventional open-economy loanable funds model is significant at the 1% level.government deficits, long-term interest rates, loanable funds model, expected inflation, world interest rates, exchange rates

Government Debt and the Long-Term Interest Rate: Application of an Extended Open-Economy Loanable Funds Model to Poland

This paper examines the behavior of the long-term interest rate in Poland based on a sample during 2001.Q1–2009.Q1. Both the demand for and supply of loanable funds are considered. Extending the openeconomy loanable funds model, this paper finds thatmore government debt as a percent of gdp leads to a higher long-term interest rate in Poland and that a higher real Treasury bill rate, more percent change in real GDP, a higher expected inflation rate, a higher world long-term interest rate, and depreciation of the zloty would increase the long-term interest rate in Poland. In the standard open-economy loanable funds model including the net capital inflow, the coefficient of the net capital inflow is positive and insignificant at the 10% level. Hence, the incorporation of the world interest rate and the nominal effective exchange rate in the model may better capture the behavior of the long-term interest rate in Poland.loanable funds model, government debt, long-term interest rates, expected inflation rates, nominal effective exchange rates

Macroeconomic Variables and the Stock Market: the Case of Lithuania

Applying the EGARCH model, this paper finds that Lithuania's stock market index is positively impacted by real GDP, the M2/GDP ratio, and the stock market indexes in the U.S. and Germany and negatively affected by the ratio of the government deficit to GDP, the LTL/USD exchange rate or depreciation of the litas, the domestic real interest rate, the expected inflation rate, and the euro area government bond yield. Hence, a declining government deficit/GDP ratio, a lower interest rate or more money supply relative to GDP, the appreciation of the litas, a lower foreign interest rate, or a robust world stock market would help the stock market in Lithuania .

Application of the IS-MP-IA model to the Singapore economy and policy implications

Extending the IS-MP-IA model (Romer, 2000), we find that equilibrium output in Singapore is negatively affected by the expected inflation rate and the world interest rate and positively influenced by real appreciation, stock market performance, and world output. Equilibrium GDP would rise by 0.872% if the real effective exchange rate rises by 1%. The coefficient of real government deficit spending is found to be insignificant, suggesting that pursuing fiscal discipline and budget surpluses in the long run by the Singapore government is appropriate.

Response of Venezuelan output to monetary policy, deficit spending, and currency depreciation: a VAR model

This study applies the VAR model to find possible responses of real GDP to selected macroeconomic variables in Venezuela. Based on an annual sample during 1961 - 2001, the author finds that the real GDP responds positively to a shcock to real M2 , goverment déficit spending, exchange rate depreciation, and the lagged output and negatively to a shick to the inflation rate during some of the time periods. Except for the lagged output, government deficit spending and the inflation rate are the most influential variable in the first year, and real M2 and the real exchange rate are more influential and have longer - term after the first year.Modelo VAR, política monetaria, déficit

Impacts of Macroeconomic Forces and External Shocks on Real Output for Indonesia

Extending Romer (2000, 2006) and Taylor (1993, 1999, 2001), this paper applies the IS-MP model to study potential impacts of selected macroeconomic variables and external shocks including crude oil prices on real GDP for Indonesia. The results show that a higher real stock price, real appreciation of the rupiah, a lower inflation rate, a higher real crude oil price, and a lower real federal funds rate are expected to increase Indonesia’s real GDP. More deficit spending as a percent of GDP would not cause real output to rise. Hence, Indonesia would not suffer declining output because of higher oil prices. Due to the insignificant coefficient of the government deficit as a percent of GDP, fiscal prudence needs to be pursued.

Responses of Real Output in Serbia to the Financial and Global Economic Conditions

Applying and extending Taylor (1993, 1999) and Romer (2000, 2006), this paper examines output fluctuations for Serbia based on a simultaneous equation model consisting of the open-economy IS function, the monetary policy function, and uncovered interest parity. The GARCH(1,0) model is employed because the residual variance is affected by the past variance. Real GDP is positively affected by the real stock price and real government deficit and negatively influenced by expected real depreciation of the dinar, the world real interest rate, and the inflation rate. There are significant seasonal effects. Therefore, a healthy stock market, a stronger dinar, a lower world real interest rate, a lower inflation rate, and an active fiscal policy will play important roles in the recovery of the Serbian economy.monetary policy function, uncovered interest parity, exchange rate, world interest rate, inflation rate, government deficit