1. Consider the following four demand functions for money: (1) InM," = a, + a,lnY," +a, In R, + a, In P, + u, (2) InM," = ß, + BlnY, + B, In R, + B; In P, + u,2 where M,", Y,", R, and P, denote,...


1. Consider the following four demand functions for money:<br>(1) InM,

Extracted text: 1. Consider the following four demand functions for money: (1) InM," = a, + a,lnY," +a, In R, + a, In P, + u, (2) InM," = ß, + BlnY, + B, In R, + B; In P, + u,2 where M,", Y,", R, and P, denote, respectively, aggregate nominal money demand, aggregate national income, long-term interest rate, implicit price deflator. These two money demand equations are estimated for the period 1949-1965 and the following estimated equations are obtained: (1) InM," = 3.999 +1.710lnY," – 0.608 ln R, – 0.759 In P, R? = 0.942, SSR = 0.080 (0.469) (2) InM," = 3.999+1.710lnY, – 0.608 ln R, + 0.9519 ln P, R² = 0.942, SSR = 0.080 (0.651) (1.801) (0.416) (0.651) (1.801) (0.416) (0.469) Based on the above information, Wind (a) Explain why the only difference between (1) and (2) is the coefficient of In P?dor

Jun 11, 2022
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