Econometric diagnostics to distinguish between the IS curve and the Ricardian equivalence

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Abstract:

In this article two different specifications of a macroeconomic model are analysed. The first model is the Keynesian IS (Investments-savings) curve. The second is derived from the New Classical Ricardian equivalence. Since the two specifications are observationally equivalent, including the same set of variables, the econometric diagnostics of the regression equations are used to differentiate between the two of them. Six statistical criteria are compared: serial correlation, heteroscedasticity, specification tests, fit, randomness, and normality. The results support much better Ricardian equivalence than the Keynesian IS model.

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/0003684042000291885

Affiliations: Faculty of Business Administration & Economics Haigazian University PO Box 11-1748 Riad El Solh Beirut 1107 2090 Lebanon, Email: azars@haigazian.edu.lb

Publication date: January 1, 2005

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