Vector Autoregressions
Vector Autoregressions
Vector Autoregressions
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• Evidence consistent with neoclassical model(real wage falls)• When consumption is included, it turns out torise, or remain unchanged.• Problem: this contradicts neoclassical model.– Gali, Lopez-Salido, Valles have explored presence ofliquidity idit constrained consumers– May be consistent with Sims-Woodford fiscal theoryof the price level