ABSTRACT
This chapter uses the estimated model in three policy experiments for the US The model is used to simulate the effects on endogenous variables of a devaluation, the imposition of a tariff on imports, and an increase in the rate of growth of domestic credit. These policy changes are fictitious in the sense that they did not actually occur during sample period. The effects of the policy changes are isolated by comparing the new solution to the model with the control solution. In the model, devaluation is represented by an increase in the domestic price of the traded goods which is equi-proportional to the devaluation. This is because, for a small country, the world prices of these goods are parametric, unaffected by the devaluation. The imposition of a tariff on imports is represented by an increase in the domestic price of importables which is equi-proportional to the tariff rate. The effect of domestic monetary expansion is to raise income directly.
