Suppose yt follows a second order FDL model: 11eb9ee2_f108_6a6d_8edd_2d1577ad75e3_SM2712_11 Let z* denote the equilibrium value of zt and let y* be the equilibrium value of yt, such that 11eb9ee2_f108_6a6e_8edd_03b7aec25453_SM2712_11 Show that the change in y* , due to a change in z* , equals the long-run propensity times the change in z* : 11eb9ee2_f108_6a6f_8edd_d5892c3cb220_SM2712_11 This gives an alternative way of interpreting the LRP.

Introductory Econometrics 4th Edition by Jeffrey Wooldridge

Edition 4ISBN: 978-0324660609

Edition 4ISBN: 978-0324660609

Exercise 9

Suppose yt follows a second order FDL model:

Let z* denote the equilibrium value of zt and let y* be the equilibrium value of yt, such that

Show that the change in y* , due to a change in z* , equals the long-run propensity times the change in z* :

This gives an alternative way of interpreting the LRP.

Explanation

Verified

Given that follows a second order FDL m...