Given a loss function of the form: V = [u+1 - Un]? + d(T+2 – T")² subject to anInertia-Augmented Phillips Curve stated as: T+1 = 1, – c(u̟ – Un) and an IS curvestated as: ( u+1 – Un) = f (r. – rs), derive the interest rate rule followed by thepolicy-maker.

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Given a loss function of the form: V = [ut+₁ − Un]² + d(πt+2 − ¹)² subject to an Inertia-Augmented Phillips Curve stated as: +1 = πt - c(uun) and an IS curve stated as: (Ut+1- Un) = f(rt-rs), derive the interest rate rule followed by the policy-maker.

Given a loss function of the form: V = [ut+₁ − Un]² + d(πt+2 − ¹)² subject to an Inertia-Augmented Phillips Curve stated as: +1 = πt - c(uun) and an IS curve stated as: (Ut+1- Un) = f(rt-rs), derive the interest rate rule followed by the policy-maker.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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