The Dynamics of a Two-Country Minimodel Under Rational Expectations

26 Pages Posted: 15 Feb 2006

See all articles by Paul R. Masson

Paul R. Masson

International Monetary Fund (IMF) - Research Department; The Brookings Institution

Date Written: September 23, 1986

Abstract

The stability and steady-state properties of a small model of the United States and the Rest of the World (MINIMOD) are examined. It is shown that the marginal propensity to consume out of wealth is a crucial parameter, and estimates are chosen to ensure stability of the model. The need to stabilize government debt as a ratio to GNP is discussed, and a simulation rule is included that adjusts tax rates accordingly. Finally, the dynamics of the model in response to monetary and fiscal shocks are related to the following structural features: the J-curve, lags in money demand, and price stickiness.

Suggested Citation

Masson, Paul R., The Dynamics of a Two-Country Minimodel Under Rational Expectations (September 23, 1986). Available at SSRN: https://ssrn.com/abstract=884507 or http://dx.doi.org/10.2139/ssrn.884507

Paul R. Masson (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

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The Brookings Institution ( email )

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