Econometric diagnostics to distinguish between the IS curve and the Ricardian equivalence

Samih Antoine Azar

Applied Economics, 2005, vol. 37, issue 1, 93-98

Abstract: In this article two different specifications of a macroeconomic model are analysed. The first model is the Keynesian IS (Investments-savings) curve. The second is derived from the New Classical Ricardian equivalence. Since the two specifications are observationally equivalent, including the same set of variables, the econometric diagnostics of the regression equations are used to differentiate between the two of them. Six statistical criteria are compared: serial correlation, heteroscedasticity, specification tests, fit, randomness, and normality. The results support much better Ricardian equivalence than the Keynesian IS model.

Date: 2005
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DOI: 10.1080/0003684042000291885

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