Use the data in the following table to calculate the refinancing rate (1) using the Taylor rule, and fill in the last cell in table. Variable Value Equilibrium real refinancing rate (;*) 2% Four-quarter average inflation (x) 2% Inflation target (T) 1% Output (Y) Potential output (Y*) 11.5 12 Weight on the output gap (w1) Weight on the inflation gap (w2) 0.5 0.5 Refinancing rate (i) Suppose that the equilibrium real refinancing rate (r*) is 1% instead of 2%. Based on the Taylor rule and assuming everything else remains the same, how would this change the refinancing rate (i) you calculated in the previous question? The central bank should set the refinancing rate at 1.42%. The central bank should set the refinancing rate at -0.58%. For every percentage point lower the equilibrium real refinancing rate goes, the nominal refinancing rate should be 1 percentage point higher. Suppose the inflation rate over the last four quarters has been 3% instead of 2%. Assuming everything else is the same, what policy would the Taylor rule recommend? O Conservative policy O Tighter policy O Easier policy

Use the data in the following table to calculate the refinancing rate (1) using the Taylor rule, and fill in the last cell in table. Variable Value Equilibrium real refinancing rate (;) 2% Four-quarter average inflation (x) 2% Inflation target (T) 1% Output (Y) Potential output (Y) 11.5 12 Weight on the output gap (w1) Weight on the inflation gap (w2) 0.5 0.5 Refinancing rate (i) Suppose that the equilibrium real refinancing rate (r*) is 1% instead of 2%. Based on the Taylor rule and assuming everything else remains the same, how would this change the refinancing rate (i) you calculated in the previous question? The central bank should set the refinancing rate at 1.42%. The central bank should set the refinancing rate at -0.58%. For every percentage point lower the equilibrium real refinancing rate goes, the nominal refinancing rate should be 1 percentage point higher. Suppose the inflation rate over the last four quarters has been 3% instead of 2%. Assuming everything else is the same, what policy would the Taylor rule recommend? O Conservative policy O Tighter policy O Easier policy

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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