Homework Answers
Accordingly we have
policy interest rate set by the government = rate of inflation + equilibrium real rate of interest + 0.5*output gap + 0.5*inflation gap
= 5 + 2 + 0.5*1 + 0.5*(5 - 2)
= 9%
Hence the nominal interest rate is 9%,
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10. The Taylor rule. Using the Taylor rule, for an inflation target of 2%, an equilibrium...
Given the Taylor Rule, if nominal inflation is 4.3%, the FED target inflation rate is 2%,...
Given the Taylor Rule, if nominal inflation is 4.3%, the FED target inflation rate is 2%, the real Fed Funds rate is 0.7%, the log of real output is 3.0155, and the log of potential output is 3.0445; what should the be the FED’s Fed Funds target rate?
1. Given the Taylor Rule, if nominal inflation is 4.3%, the FED target inflation rate is 2%, the real Fed Funds rate is...
1. Given the Taylor Rule, if nominal inflation is 4.3%, the FED target inflation rate is 2%, the real Fed Funds rate is 0.7%, the log of real output is 3.0155, and the log of potential output is 3.0445; what should the be the FED's Fed Funds target rate?
Assume that the equilibrium real fed funds rate is 2% and that an appropriate target for...
Assume that the equilibrium real fed funds rate is 2% and that an appropriate target for inflation would also be 2%. The country's potential GDP growth rate is known as 3%. Suppose that the current inflation rate is 3% and actual growth rate is 4%. (a) Then, what would be the central bank's target interest rate implied by Taylor Rule? (b) Suppose current monetary policy interest rate (fed funds rate) is 8%. Evaluate the current monetary policy stance using the...
If the Fed is using a Taylor Rule with 150% inflation feedback (a = 5), wishes...
If the Fed is using a Taylor Rule with 150% inflation feedback (a = 5), wishes to target 4% inflation, and believes the equilibrium real interest rate is 2%, what should the i*-axis intercept be? (The i*-axis intercept is the value of i* when inflation is 0. Ignore the zero-mean output gap term) O A. -1% OB. 0% C. +1% OD. +2% OE. +3% or higher
6. 7. Inflation targeting and the Taylor rule in the IS-LM model Consider a closed economy...
6.
7.
Inflation targeting and the Taylor rule in the IS-LM model Consider a closed economy in which the central bank follows an interest rate rule. The IS relation is given by Y C(Y- T) I(Y,r) G Where r is the real interest rate. The central bank sets the nominal interest rate according to the rule i = i* + a(n° =- T*) + b(Y- Y1) Where T is expected inflation, T* is the target rate of inflation, and Yn...
6. 7. Inflation targeting and the Taylor rule in the IS-LM model Consider a closed economy...
6.
7.
Inflation targeting and the Taylor rule in the IS-LM model Consider a closed economy in which the central bank follows an interest rate rule. The IS relation is given by Y C(Y- T) I(Y,r) G Where r is the real interest rate. The central bank sets the nominal interest rate according to the rule i = i* + a(n° =- T*) + b(Y- Y1) Where T is expected inflation, T* is the target rate of inflation, and Yn...
please answer Question 7: Inflation targeting and the Taylor rule in the IS-LM model Consider a...
please answer Question 7:
Inflation targeting and the Taylor rule in the IS-LM model Consider a closed economy in which the central bank follows an interest rate rule. The IS relation is given by Y C(Y- T) I(Y,r) G Where r is the real interest rate. The central bank sets the nominal interest rate according to the rule i = i* + a(n° =- T*) + b(Y- Y1) Where T is expected inflation, T* is the target rate of inflation,...
Using the Taylor rule, calculate the target for the federal funds rate for July 2010 using the following information:
Using the Taylor rule, calculate the target for the federal funds rate for July 2010 using the following information: Equilibrium real federal funds rate 2% Target inflation rate 2% Current inflation rate 0.9% Output gap -6%The target for the federal funds rate for July 2010 is _______ %. (Enter your response rounded to two decimal places and include a minus sign if necessary) In your calculations, the inflation gap is negative if the current inflation rate is below the target inflation rate. How does the...
Use the following Taylor rule to calculate what would happen to the real interest rate if...
Use the following Taylor rule to calculate what would happen to
the real interest rate if inflation increased by 7 percentage
points.
Target federal funds rate
= Natural rate of interest + Current inflation + 1/2(Inflation gap)
+ 1/2(Output gap)
Use the following Taylor rule to calculate what would happen to the real interest rate if inflation increased by 7 percentage points. Target federal funds rate = Natural rate of interest + Current inflation + 1/2(Inflation gap) + 1/2(Output gap)...
Use the Taylor rule to: Calculate the target for the federal funds rate for October 2012,...
Use the Taylor rule to: Calculate the target for the federal funds rate for October 2012, using the following information: equilibrium real federal funds rate of 2%, target inflation rate of 2%, current inflation rate of 1.2%, and a (negative) output gap of 5.9%. In your calculations, the inflation gap is negative if the current inflation rate is below the target inflation rate. How does the targeted federal funds rate calculated using the Taylor rule compare to the actual federal...
1. Given the Taylor Rule, if nominal inflation is 4.3%, the FED target inflation rate is 2%, the real Fed Funds rate is 0.7%, the log of real output is 3.0155, and the log of potential output is 3.0445; what should the be the FED's Fed Funds target rate?
Assume that the equilibrium real fed funds rate is 2% and that an appropriate target for inflation would also be 2%. The country's potential GDP growth rate is known as 3%. Suppose that the current inflation rate is 3% and actual growth rate is 4%. (a) Then, what would be the central bank's target interest rate implied by Taylor Rule? (b) Suppose current monetary policy interest rate (fed funds rate) is 8%. Evaluate the current monetary policy stance using the...
If the Fed is using a Taylor Rule with 150% inflation feedback (a = 5), wishes to target 4% inflation, and believes the equilibrium real interest rate is 2%, what should the i*-axis intercept be? (The i*-axis intercept is the value of i* when inflation is 0. Ignore the zero-mean output gap term) O A. -1% OB. 0% C. +1% OD. +2% OE. +3% or higher
6.
7.
Inflation targeting and the Taylor rule in the IS-LM model Consider a closed economy in which the central bank follows an interest rate rule. The IS relation is given by Y C(Y- T) I(Y,r) G Where r is the real interest rate. The central bank sets the nominal interest rate according to the rule i = i* + a(n° =- T*) + b(Y- Y1) Where T is expected inflation, T* is the target rate of inflation, and Yn...
6.
7.
Inflation targeting and the Taylor rule in the IS-LM model Consider a closed economy in which the central bank follows an interest rate rule. The IS relation is given by Y C(Y- T) I(Y,r) G Where r is the real interest rate. The central bank sets the nominal interest rate according to the rule i = i* + a(n° =- T*) + b(Y- Y1) Where T is expected inflation, T* is the target rate of inflation, and Yn...
please answer Question 7:
Inflation targeting and the Taylor rule in the IS-LM model Consider a closed economy in which the central bank follows an interest rate rule. The IS relation is given by Y C(Y- T) I(Y,r) G Where r is the real interest rate. The central bank sets the nominal interest rate according to the rule i = i* + a(n° =- T*) + b(Y- Y1) Where T is expected inflation, T* is the target rate of inflation,...
Use the following Taylor rule to calculate what would happen to
the real interest rate if inflation increased by 7 percentage
points.
Target federal funds rate
= Natural rate of interest + Current inflation + 1/2(Inflation gap)
+ 1/2(Output gap)
Use the following Taylor rule to calculate what would happen to the real interest rate if inflation increased by 7 percentage points. Target federal funds rate = Natural rate of interest + Current inflation + 1/2(Inflation gap) + 1/2(Output gap)...
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