Palgrave Handbook of Econometrics: Applied Econometrics

886 Macroeconometric Modeling for Policy

implies the steady-state meanμ:

( 4 −0.85)gx= 1 −0.25μ

μ= 4 −12.6gx,

so the steady-state relationship between the variables is:

yt=

(

4 −12.6gx

)

+ 4 xt,

which will hold both for the complete as well as the stylized dynamic representa-
tion of the model.
Using this approach, the full econometric model reported in section 17.3.1 can
be given the following stylized representation:

vt=−0.04(R−R∗)t−0.04

{(

v+p∗−p

)

−0.12

×

[

(R−π)−

(

R∗−π∗

)]}

t− 1

(17.60)



(

pi−pi∗−v

)

t

=−0.1vt−0.43

[(

pi−pi∗−v

)

−0.55

(

p−p∗−v

)]

t− 1

(17.61)

pt=−0.09zt+0.03pit+0.08pet+0.06yt

−0.07[p−0.7(w−z)−0.3pi]t− 1 (17.62)



(

w−p

)

t=−0.04ut+0.73T^1 t−0.07

[(

w−p−z

)

+0.1u

]

t− 1 (17.63)

zt=0.09

(

w−p

)

t

−0.24

[

z−0.47

(

w−p

)

−0.003Trend−0.03u

]

t− 1 (17.64)

ut=−0.23

{

u−7.65

(

w−p

)

−4.46

[

0.01

(

RL−π

)

− 4 y

]}

t− 1

(17.65)

RL,t=0.58Rt−0.33

(

RL−0.41RB−0.76R

)

t− 1 (17.66)



(

RB−R∗B

)

t

=0.43Rt−0.17

(

RB−0.43R−0.57R∗B

)

t− 1

(17.67)

yt=0.16gt +0.38

(

l−p

)

t

−0.12

[

y−0.9gt− 1 −0.16(v+p∗−p)+0.06

(

RL−π

)]

t− 1

(17.68)



(

l−p

)

t=0.3yt−0.09

[(

l−p

)

−2.65y+0.04(RL,−RB)

]

t− 1

, (17.69)

where the constants are omitted for ease of exposition. This representation repro-
duces the same steady state as the full model, but with stylized dynamics. The
averaged transmission mechanisms can be traced through the interrelationships of
the mean dynamic effects of shocks to the model – in contrast to the steady-state
effects described above (see the discussion in section 17.3.1 for an example).