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Economic Theory testing

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Gaetan Lion
Gaetan Lion
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Keynesians vs monetarists A Granger Causality match Guy Lion April 2006 Hey Keynes, your [Tax] Cuts are no uppercut. Milton, where is your [Money] Velocity? I am Clive Granger who decides Causality
Introduction ,[object Object],[object Object],[object Object]
Keynesian economics ,[object Object],[object Object],[object Object]
Monetarism ,[object Object],[object Object],[object Object],[object Object]
Keynesians vs Monetarists fighting stands ,[object Object],[object Object]
A Budget Deficit proxy variable ,[object Object],[object Object],[object Object]
Granger Causality review ,[object Object],[object Object],[object Object],[object Object],We will skip step 4 because we are not interested on whether GDP impacts fiscal or monetary policies, but on whether fiscal or monetary policies have a greater impact on GDP.
Selecting the lagged variable for GDP Data source: quarterly data since second quarter 1959 to 3d quarter 2005. Source: BEA (GDP), Flow of Funds (Treasury -> Deficit Financing), Federal Reserve (M2).
Granger Causality GDP Output P values for both test models are too high. In the Mann-Whitney test, the Milton model is going in the wrong direction. The avg. rank went up. That’s bad.
Keynes vs Milton slugfest
Conclusion [Milton to Granger] I feel tired right now. Keynes wins by Granger causing decision.

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Economic Theory testing

  • 1. Keynesians vs monetarists A Granger Causality match Guy Lion April 2006 Hey Keynes, your [Tax] Cuts are no uppercut. Milton, where is your [Money] Velocity? I am Clive Granger who decides Causality
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  • 8. Selecting the lagged variable for GDP Data source: quarterly data since second quarter 1959 to 3d quarter 2005. Source: BEA (GDP), Flow of Funds (Treasury -> Deficit Financing), Federal Reserve (M2).
  • 9. Granger Causality GDP Output P values for both test models are too high. In the Mann-Whitney test, the Milton model is going in the wrong direction. The avg. rank went up. That’s bad.
  • 10. Keynes vs Milton slugfest
  • 11. Conclusion [Milton to Granger] I feel tired right now. Keynes wins by Granger causing decision.