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Unformatted text preview: holdings Fed choose money supply growth target, Fed Funds rate will be determined by growth of Dres and currency holdings IFF= Inflation + realq uilibrium fed funds rate (I- pi)+ 1/2 (Inflation-inflation target) +1/2 (output growth-output target_ Taylor Rule mechanics Assume: inflation 2%, y = 3% I_ff Target= 2+2+.5(2-2)+.5(3-3)=4%, real rate = 2% 3+...
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- Fall '10
- Monetary Policy