NBER paper outlines ‘four-equation model’
Authors expand the textbook three-equation model to account for unconventional policy
Economists Eric Sims and Jing Cynthia Wu have developed what they call a “four-equation model”, extending the textbook three-equation model to include unconventional monetary policy.
In the National Bureau of Economic Research working paper, they note the textbook model has been “proven inadequate” for analysing many of the issues that have “come to the fore in policy circles” since the global crisis. They aim to “bridge the gap” between “complicated quantitative dynamic stochastic general
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