2_sticky_prices_more_mon_policy_questions_17.pdf - Sticky...

This preview shows page 1 - 2 out of 3 pages.

Sticky Prices (and a bit more Monetary Policy): QuestionsShort answer questions1. Suppose that through to periodt°1an economy is in equilibrium with an output gapequal to zero and in°ation at target. In periodtinformation arrives indicating that the outputgap will be°1in periodt,°1in periodt+ 1and°1in periodt+ 2, before returning toequilbrium in periodt+ 3.How will in°ation behave according to an adaptive expectationsPhillips Curve and a New Keynesian Phillips Curve? What would happen if the recession wasanticipated as of periodt°1?2. Consider theIS-PC-MRmodel. The economy is initially in equilibrium at a2%in°ationtarget. At the end of periodt°1the policy authority announces that the in°ation target willbe1%from periodt+ 1onwards. From periodtonwards, describe the adjustment towards thenew equilibrium in each of the following three cases:i. a Phillips curve based on adaptive expectations;ii. a Phillips curve based on rational expectations and °exible prices;

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture