Consider the following aggregate demand and supply relations and the monetary policy rule. yt= β0 + β1(mt -pt) + ωt (AD) yt= yn + α (pt -Et-1pt) + νt (AS) mt= μ0 + μ1mt-1 + et (MP) The random term for AD has the moving average form ωt =ξt+ρξt-1, where ξt, et, andνt are white noise terms. Derive a solution for ptand yt.Interpret your solution for pt, using directly your solution for it and your expectations regarding the signs of the AD, AS and MP parameters.

Consider the following aggregate demand and supply relations and the monetary policy rule. yt= β0 + β1(mt -pt) + ωt (AD) yt= yn + α (pt -Et-1pt) + νt (AS) mt= μ0 + μ1mt-1 + et (MP) The random term for AD has the moving average form ωt =ξt+ρξt-1, where ξt, et, andνt are white noise terms. Derive a solution for ptand yt.Interpret your solution for pt, using directly your solution for it and your expectations regarding the signs of the AD, AS and MP parameters.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter19: Externalities And Public Goods

Section: Chapter Questions

Problem 19.12P

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