Policy Implications of the Estimated Model

This chapter presents interpretations of the estimates and summarizes the policy implications of the estimates and summarizes the policy implications of the estimated coefficients, equation by equation. In order to trace the impact of policy decisions on the whole model, capturing the interactions between the five endogenous variables, the estimated model is then solved simultaneously several times, each for different policy scenarios. Current net foreign investment, bringing in new capital, appreciates the exchange rate in the current year, but leads to devaluation by a smaller amount in the following year. The estimated inflation equation is a function of three of the other endogenous variables: growth, changes in the money supply, and changes in the exchange rate. The average error in prediciton for the inflation equation and the distribution equation are both less than half a percent in relative terms.