Application of the IS-MP-IA Model to the Slovene Economy and Policy Implications

Yu Hsing

Economia Internazionale / International Economics, 2005, vol. 58, issue 2, 167-177

Abstract: This article extends the IS-MP-IA model (Romer, 2000) and applies the GARCH process (Engle, 1982, 2001) to study output variations in Slovenia. Equilibrium GDP in Slovenia is found to have a positive relationship with real depreciation and the world output and a negative relationship with the federal funds rate and the expected inflation rate. The insignificant coefficient of real deficit spending suggests that the Ricardian-equivalence theory may hold for Slovenia. Although real depreciation is expected to help net exports, its relatively small value indicates that it would be appropriate to pursue a stable exchange rate policy.

Keywords: IS-MP-IA; GARCH; real depreciation; expected inflation; budget deficit; world interest rates and output (search for similar items in EconPapers)
JEL-codes: E50 E60 F40 (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (3)

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