Abstract
Using a simple integrated Keynesian-Monetarist model, this paper highlights some of the major factors which hinder the large Canadian macroeconomic models from achieving the neutrality and homogeneity properties. An analysis of these factors reveals that, whereas the large models can be modified to produce the neutrality property, it can not be expected that these models also demonstrate the homogeneity property, i.e. that change in the money supply be fully reflected in changes in nominal GNE.
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Views expressed in this paper are the author's and do not represent the views of the Department of Finance. Thanks are due to John Sargent, Patrick Grady, Don Drummond, Chris Georgas, Paul-Henri Lapointe and an anonymous referee of this Journal for suggestions and comments which have considerably improved the contents of this paper. The author is particularly thankful to Erik Hansen for the software assistance in setting up the model and in running all the simulations. Of course, the author accepts complete responsibility for all errors remaining.
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Sheikh, M.A. An analysis of some possible causes for the absence or presence of the neutrality and homogeneity properties in large macroeconomic models. Empirical Economics 9, 113–130 (1984). https://doi.org/10.1007/BF01969390
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DOI: https://doi.org/10.1007/BF01969390