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Suppose we're modeling an economy using the Solow model. It begins in steady state. By what proportion does y? (the post-change steady-state per capita GDP) change in response to the following changes? Show your work/reasoning (a solution for y? will be a useful starting point).
(a) The investment rate doubles?
(b) The depreciation rate falls by 15%
(c) Productivity rises by 15%
Real Exchange Rates (EXCH) is the next variable that will be analysed in this VAR. The reason for including exchange rates in the VAR is that they are an important channel through
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Once Y is determined, almost all of the other variables are determined since they are either exogenous or they depend on Y. From Y we can determine C by consumption function, I m
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