ASSIGNMENT 1: DO WE REALLY NEED OPEN-ECONOMY MACROECONOMICS? ECON301

ASSIGNMENT 1: DO WE REALLY NEED OPEN-ECONOMY MACROECONOMICS?

Part 1: Closed economy

1. Write the identity of a closed economy, that is, defining the components of GDP


2. Rewrite it so as to make national savings explicit


3. What is the key implication in a closed economy for the financing of investment?


4. How do you translate this implication into a statistical stylized fact that we can cross- check with data?

Part 2: Open economy

1. Write the identity of an open economy


2. Rewrite it so as to make national savings explicit


3. What is the key implication in an open economy for the financing of investment?


4. Given Q3, what do you expect to find about the statistical stylized fact in the data?

Part 3: Data and investigation on OECD countries

1. Find data on gross savings to GDP (S) and investment to GDP (I) ratios for the following countries between 1970 and 1990: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, Luxemburg, Netherlands, New Zealand, Norway, Spain, Sweden, Switzerland, UK, US


2. Using excel (data analysis) or Stata, estimate the following model using pooled OLS:

????_???? = ???? + ????????_???? + ????_????

3. Is the ????coefficient significant and anywhere near your theoretical predictions?


4. What does that mean for the study of policy making in an open-economy over the period?


5. Update your database to include data up to today (2015).


6. Re-assess Q1, Q2, Q3 using the period 1990-


7. Are your conclusions from Q4 still accurate?

Part 4: What have you learned from this assignment? Write down a few bullet points