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Question: econ 125 homework 3 consider the following distributed lag model...

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ECON 125 Homework 3 Consider the following distributed lag model relating the percentage growth in private investment (INVGWTH) to the federal funds rate of interest (FFRATE): -0.2FFRATE,-3 (a) Suppose FFRATE= 1% for t = 1, 2, 3, 4. Use the above equation to forecast INVGWTH for t = 4. (b) Suppose FFRATE is raised to 1.5% in period 1 = 5 and then returned to its original level of 1% for t 6, 7, 8,9. Use the equation to forecast INVGWTH for periods t 5. 6, 7,8, 9. Relate the changes in your forecasts to the values of the coefficients. What are the delay multipliers? (c) Suppose FFRATE is raised to 1.5% for periods 5, 6, 7, 8, 9, Use the equation to forecast INVGWTH for periods 5. 6. 7. 8. 9. Relate the changes in your orecasts to the values of the coefficients. What are the interim multipliers? What is the total multiplier?
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