THE ECONOMETRICS OF MACROECONOMIC MODELLING

Credit expansion crt

The growth rate of real credit demand, Acrt, is sluggish, and it is also affected in the short run by income effects. In addition the equation contains a step dummy st for the abolition of currency controls (which again takes the value 1 after 1990(3) and (0) before) and a composite dummy variable

CRdumt = [0.5i85q3 + i85q4 + 0.5i86q1 + i87q1 + P dum]t

to account for the deregulation of financial markets.

Acrt = — 0.26 + 0.17Acrt_ i + 0.42Acrt_ 2 + 0.10Ayt (0.05) (0.06) (0.06) (0.02)

— 0.27ARLt_i — 0.026ecmcrt + 0.015CRdumt — 0.006st (9.11) (0.12) (0.005) (0.002) (0.002)

T = 1972(4)-2001(1) = 114

a = 0.61%

F ar(i-5)(5, 101) = 0.52[0.75] xLmality(2) = 0.06[0.97]

Fhetx2(13, 92) = 0.94[0.51].

(Reference: see Table 9.2. The numbers in [..] are p-values.)

The long-run properties are those of a standard demand function—with an elasticity of 2 with respect to income and a negative effect from opportunity costs, as measured by the difference between bank loan rates RL and bond rates RBO

ecmcr, t = crt-з — 2yt-i + 2.5(RLt-i — RBOt-i).