Answered: ime remaining: 01 :56 :54 Economics To…

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter22: Inflation

Section: Chapter Questions

Problem 34P: The total price of purchasing a basket of goods in the United Kingdom over four years is: year...

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Time remaining: 01 :56 :54 Economics To study the determinants of growth across the countries in the world, researchers have used country level observations averaged over long periods of time (e.g. averaged over 1960- 2000). Some of these studies have focused on the effect that inflation has on growth and found that although the effect is small for a given time period, it accumulates over time and therefore has an important negative effect. (a) Explain why the OLS estimator may be biased in this case. (b) Some authors have suggested using an index of the Central Bank Independence as an instrumental variable. Discuss whether or not such an index would be a valid instrument (discuss both relevance and exogeneity; note that instrumental validity is more of an economic rather than econometric concept

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