Lecture 17 -- Inflation expectations

Lecture 17 -- Inflation expectations - ECO 320L, Fall 2010,...

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ECO 320L, Fall 2010, Professor Beatrix Paal updated 10/4/2010 10:36 AM Lecture 17: Inflation expectations, Money market equilibrium Lecture 17    Last time quick review of money multiplier ( Chapter 14.1 and 14.2 ) money demand ( Chapter 7.2 and 7.3 ) Today the quantity theory of money inflation expectations aggregation in the asset market ( Chapter 7.4 ) Next time monetary policy LM curve      supply, demand and equilibrium nominal money supply: real money demand equilibrium condition in nominal form, or in (equivalent) real form simplest implications implication for the price level: – in equilibrium, the price level is proportional to the money supply implications for the inflation rate: – the equilibrium condition holds both in the presents and in the future: – implication for the growth rate: – inflation is largely driven by money growth as long as money demand does not change rapidly or fluctuate wildly 2 SD MP L = S D M L P = 11 1 Sf f Df S D S D L M P L PP ML M L σ   ΔΔ Δ = += + +  π PDF Created with deskPDF PDF Writer - Trial :: http://www.docudesk.com
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ECO 320L, Fall 2010, Professor Beatrix Paal updated 10/4/2010 10:36 AM Lecture 17: Inflation expectations, Money market equilibrium        combining the money market clearing condition with the money demand function, we get rewriting the nominal interest rate as a sum of the real rate and expected inflation, we get 5 endogenous variables in the money market clearing condition:      How are these variables determined? classical and Keynesian views are different, and this is where the two models significantly depart from each other 3 (,) M LYi P = (, ) e M LY r P =+       classical dichotomy real and nominal sides of the economy are independent real side: – labor market
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This note was uploaded on 10/25/2010 for the course ECO 320L taught by Professor Kendrick during the Fall '10 term at University of Texas at Austin.

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Lecture 17 -- Inflation expectations - ECO 320L, Fall 2010,...

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