Q: Suppose inflation is described by the accelerationist Phillips curve, π(
Suppose inflation is described by the accelerationist Phillips curve, π(t)= λy(t),λ>0, and that output is determined by a simple IS curve, y(t) =− b[i(t)−π(t)], b > 0. Initially, the central bank is s...
See AnswerQ: Suppose output is given by y = x +(k +εk
Suppose output is given by y = x +(k +εk)z +u, where z is some policy instrument controlled by the government and k is the expected value of the multiplier for that instrument. εk and u are independen...
See AnswerQ: Suppose the economy is described by linear IS and money-market
Suppose the economy is described by linear IS and money-market equilibrium equations that are subject to disturbances: y=c−ai+ε1, m− p =hy−ki+ε2, where ε1 and ε2 are independent, mean-zero shocks with...
See AnswerQ: Consider the system given by (12.41). (
Consider the system given by (12.41). (a) What does the system simplify to when φπ = 1? What are the eigen values of the system in this case? Suppose we look for self-fulfilling movements in ~ y and π...
See AnswerQ: Consider the model of Section 12.4. Suppose, however
Consider the model of Section 12.4. Suppose, however, the aggregate supply equation, (12.16), is πt = πt−1 +α(yt−1 − yn t−1 )+επ t , where επ is a white-noise shock that is independent of εIS and εY....
See AnswerQ: Summers (1988, p. 386) states, ‘‘In
Summers (1988, p. 386) states, ‘‘In an efficiency wage environment, firms that are forced to pay their workers premium wages suffer only second-order losses. In almost any plausible bargaining framewo...
See AnswerQ: Consider an economy where money is neutral. Specifically, assume that
Consider an economy where money is neutral. Specifically, assume that πt = mt and that r is constant at zero. Suppose that the money supply is given by mt =kmt−1 +εt, where ε is a white-noise disturba...
See AnswerQ: Suppose that aggregate supply is given by the Lucas supply curve,
Suppose that aggregate supply is given by the Lucas supply curve, yt = yn+b(πt−πe t ),b > 0,andsupposethatmonetarypolicyisdetermined by mt =mt−1+a+εt, where ε is a white-noise disturbance. Assume that...
See AnswerQ: Suppose you want to test the hypothesis that the real interest rate
Suppose you want to test the hypothesis that the real interest rate is constant, so that all changes in the nominal interest rate reflect changes in expected inflation. Thus your hypothesis is it =r +...
See AnswerQ: Suppose that instead of adjusting their real money holdings gradually toward the
Suppose that instead of adjusting their real money holdings gradually toward the desired level, individuals adjust their expectation of inflation gradually toward actual inflation. Thus equations (12....
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