Consider a classical economy with an exogenous real interest rate process {rt}. Discuss the conditions under which the equilibrium will be (locally) unique and solve for the equilib- rium level of inflation when the central bank follows the rules: (a) Rule #1: Partial adjustment i₁ = $¡it−1 + (1 − $;)ii where ; € [0,1] and it is a reference interest rate given by, ϋ =ρ+Φαπε (b) Rule #2: Moving average inflation targeting

Consider a classical economy with an exogenous real interest rate process {rt}. Discuss the conditions under which the equilibrium will be (locally) unique and solve for the equilib- rium level of inflation when the central bank follows the rules: (a) Rule #1: Partial adjustment i₁ = $¡it−1 + (1 − $;)ii where ; € [0,1] and it is a reference interest rate given by, ϋ =ρ+Φαπε (b) Rule #2: Moving average inflation targeting

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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