In the absence of a policy response, the effect on the economy's short-run equilibrium can be seen immediately from equations 31 through 36.
The role of future monetary policy in influencing the short-run equilibrium has, of course, been widely discussed.
Specifically it is suggested that students may benefit from conceptualizing any short-run equilibrium
level of GDP as the sum of all individual (demand-side) multiplier effects at work in the economy at a given point in time.
If equilibrium is feasible for a given set of parameters, then any population distribution between sectors in both countries can support the short-run equilibrium
In the following, the initial equilibrium is indexed by a subscript 0; the short-run equilibrium
, where the nominal wages are not able to respond to current shocks, is not indexed; the long-run equilibrium, where the economy reaches a new steady state after shocks, is indexed by overscores.
Inferences about the state of the short-run equilibrium
can be made by considering the lagged [z.
t] terms indicate the state of the short-run equilibrium
in the model under investigation.
The short-run equilibrium
for a constant natural rate can be calculated by equation (9) or (13).
As indicated before, it will be assumed that the variables which adjust in the short run (f, g), remain in their short-run equilibrium
level during the long-run analysis.
Vector Autoregression (VAR) for Short-run Equilibrium
A short-run equilibrium
is obtained at E[prime] where there is over-employment and a trade surplus.
In a short-run equilibrium
, the number of firms is fixed and the socially optimal a and y can be completely characterized as the solution to