Responses of Output to Declining Stock Values and Real Depreciation in Lituania

This paper examines output fluctuations for Lithuania by applying the IS-MP-UIP model. Comparative-static analysis is applied to find the possible sign of a change in an exogenous variable on the equilibrium real GDP. The generalized least squares method is employed to estimate consistent covariance and standard errors. The CUSUM and CUSUMSQ tests are employed to assess the stability of the estimated regression. The results show that a higher ratio of government deficit/GDP, a lower expected real exchange rate, a higher real stock value, a lower real euro interest rate, more output in the EU, and a lower inflation rate would increase real GDP.