An illustration in Mark's Stochastic MF model (2000): simulation and estimation of the overflow effect
DOI:
https://doi.org/10.24275/uam/azc/dcsh/ae/2020v35n89/LizarazuKeywords:
Impulse-response function, Mundell-Fleming model, numerical simulation, overshooting, VAR estimationAbstract
By iterating the expectations, we verify that the solution of rational expectations reported by Mark (2000) is unique for the stochastic Mundell-Fleming (MF) model. In addition, with simulated data and R software, we estimate the overshooting’s Dornbusch (1976) on the stochastic MF model. In particular, the exercise suggests using some variants of the VAR estimate due to collinearity in exogenous unit root processes.
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