Empirical Estimation of Is-Lm Model for the US Economy by Applying Jmulti
Abstract
The main goal of the paper is to examine how well the dynamics properties of the estimated model of the US economy match to the theoretical prediction to the IS-LM model or with other words to test the theoretical IS-LM model for the US by applying time series estimations (standard VAR and VECM time series models). The interest variables in the models are: real GDP, three month interbank interest rate, and real monetary base. Several pre estimation tests have been made: 1) the Jarque - Bera test of normality shows that the normality of the time series is not problem in these models, but the ARCH LM test of heteroscedasticity indicates that the monetary base and interbank interest rate are heterosedastic; 2) The ADF test for unit root and Johansen test for co integration have been made to identify the optimal number of lags of the variables in the models. The applied post estimation Chow test for VAR model indicated that the model is not stable and therefore we use VECM model. The estimated results based on applying VECM model show that if the system is in disequilibrium alteration in the change of interbank interchange interest rate, log of real GDP, and monetary base will be downward 5.5%, 4.6% and 0.4% respectively. The chow test indicates that the VECM model is stable.
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