Aggregate demand equation

OLS

2SLS/IV

3SLS

Lagged output gap

0.5389*** (0.000)

0.5892*** (0.000)

0.5663*** (0.000)

Expected output gap

0.5135*** (0.000)

0.4307*** (0.000)

0.4462*** (0.001)

Real interest rate

0.0385 (0.900)

0.1879 (0.608)

0.1508 (0.675)

Real exchange rate

−0.2278 (0.745)

0.5549 (0.598)

0.3651 (0.724)

Constant

1.0526 (0.765)

−2.7936 (0.593)

−1.8574 (0.718)

Money demand equation

Real output gap

0.0027 (0.429)

−0.0003 (0.973)

−0.0085 (0.205)

Nominal interest rate

−0.6039*** (0.000)

−0.6120*** (0.000)

−0.6280*** (0.000)

Nominal exchange rate

0.8380*** (0.000)

0.8418*** (0.000)

0.8363*** (0.000)

Constant

3.9334*** (0.000)

3.9354*** (0.000)

3.9972*** (0.000)

Aggregate supply equation

Expected inflation rate

0.4882*** (0.000)

0.5014*** (0.000)

0.5255*** (0.000)

Lagged inflation rate

0.4957*** (0.000)

0.5036*** (0.000)

0.4860*** (0.000)

Output gap (current+lagged)

−0.0003 (0.259)

0.0001 (0.850)

0.0002 (0.731)

Real interest rate

−0.0372 (0.003)***

0.0049 (0.736)

0.0036 (0.794)

REER

0.0256 (0.303)

−0.0073 (0.829)

−0.0216 (0.510)

Real money supply

0.0226 (0.007)***

−0.0035 (0.707)

0.0021 (0.817)

Constant

0.0883 (0.348)

0.0483 (0.712)

0.0589 (0.642)

Exchange rate equation

Expected REER

0.9576*** (0.000)

0.9978*** (0.000)

0.9884*** (0.000)

Interest rate differential (domestic-foreign)

−0.0058 (0.360)

−0.0045 (0.489)

−0.0054 (0.393)

Net foreign assets

−0.0004 (0.920)

−0.0013 (0.724)

−0.0012 (0.749)

Constant

0.2009* (0.105)

0.0067 (0.961)

0.0521 (0.698)

Interest rate equation

Expected inflation rate

0.0906*** (0.000)

0.0929*** (0.000)

0.0904*** (0.000)

Nominal exchange rate

0.0952*** (0.000)

0.0925*** (0.000)

0.0947*** (0.000)

Bank rate

0.9042*** (0.000)

0.9022*** (0.000)

0.9085*** (0.000)

Constant

−0.1478* (0.030)

−0.1344*** (0.119)

−0.1584** (0.044)

No of observations

158

158

158

Hausman test

Ols vs 2 sls 2.45 (0.6532)

2 sls vs 3sls 1.25 (0.8703)

Ols vs 3 sls 2.17 (0.7038)