Suppose yt follows a second order FDL model:Let z* denote the equilibrium value of zt and...

Suppose yt follows a second order FDL model:

Let z* denote the equilibrium value of zt and let y* be the equilibrium value of yt, such that

Show that the change in y* , due to a change in z* , equals the long-run propensity times the change in z* :

This gives an alternative way of interpreting the LRP.