Analyzing a Small French ECM Model
present more explicit formulations
have better stabilized properties
separate the long term formulation and the short term dynamics
give results easier to interpret
but still be usable for policy analysis.
We simulate the model over a very long period, observing the existence and specificity of the numerical convergence to a steady state grow path. We analyze the response of the model to shocks, both in the short and long term, associating it to the ECM specifications.
We then build the long term model, analyzing its logical structure, and check the identity of its properties to the normal version. Finally, we analyze the eigenvalues of the linearized dynamic process, associating them to individual dynamics.
KeywordsError Correction Model Demand Shock Productive Investment Saving Ratio Term Simulation
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- 2.The notion of “desired value” must be taken here in a wide sense. It can represent actually a long term equilibrium value, resulting from the confrontation of the behaviour of two agents or even of a natural and uncontrolled evolution.Google Scholar
- 3.It will not give however a constant solution, as the exogenous variables change according to the growth assumptions presented earlier.Google Scholar
- 4.Which appears only because firms sell at one price, and buy capital at another.Google Scholar
- 5.By “outside” we mean not affecting directly an equation of the subsystem, as the exoge?nous assumptions listed above. Google Scholar
- 6.We have considered as zero eigenvalues not only the truly null ones but also the one with a modulus of less than 10–3.Google Scholar