Inflation rate is 7,8, target inflation rate is 2,1, GDP growth is 5,2, potential GDP growth...

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Inflation rate is 7,8, target inflation rate is 2,1, GDP growth is 5,2, potential GDP growth is 2,7, equilibrium real fed fun

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Answer 1

Answer #1

By fisher's equation,

I= r + Pi(e)

I= nominal interest rate, r= real interest rate and Pi(e) = expected inflation

by that logic, I = 1.8 + 2.1 = 3.9

A more sophisticated approach will involve solving Phillip curve and Okun's law simultaneously.

I.e Pi = I(U-U*) + Pi(e)

and (Y*-Y)/Y* = 2(U-U*)

where * denotes the targeted/expected/natural figures.

one can substitute and solve fisher's equation simultaneously to get the actual value.

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Answer 2

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