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5. Consider the Taylor rule: r = (81)[ri-1]+($₂)[r" + a₂Y+ a(-)]. Assume target inflation at 2% and natural rate of inte
Posted: Fri Jul 01, 2022 8:13 am
by answerhappygod
- 5 Consider The Taylor Rule R 81 Ri 1 R A Y A Assume Target Inflation At 2 And Natural Rate Of Inte 1 (23.88 KiB) Viewed 38 times
5. Consider the Taylor rule: r = (81)[ri-1]+($₂)[r" + a₂Y+ a(-)]. Assume target inflation at 2% and natural rate of interest at 1.8%. (a) If output gap increase by 1.5% and actual inflation to 4%, how much will be the interest rate increase from 2% if the central bank gives twice more weight to output gap as compared to inflation targeting weight of 0.5? Assume sy = $20.5. [Write the Taylor rule first and then compute] Which component of this Taylor rule captures smoothness of interest rate changes? and How?