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Taylor model

Taylor model

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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2 The basic Taylor model of price level adjust- ment The basic Taylor model of price level adjustment was derived under the as- sumption that the nominal wage is set in period t remained unchanged for periods t and t+ 1. suppose instead each period t contract specifies a nomi- nal wage r for period t and x? for period t + 1. Assume these are given by = pi + Ky: and a = E¡pt+1 + KErYt+1 The aggregate price level at time t is equal to pt = 0.5(x + x). If aggregate demand given by y = m - Pt and m = mo +wi, what is the effect of money shock we on pi and y? Explain why output shows no persistence after money shock? %3D 1
Transcribed Image Text:2 The basic Taylor model of price level adjust- ment The basic Taylor model of price level adjustment was derived under the as- sumption that the nominal wage is set in period t remained unchanged for periods t and t+ 1. suppose instead each period t contract specifies a nomi- nal wage r for period t and x? for period t + 1. Assume these are given by = pi + Ky: and a = E¡pt+1 + KErYt+1 The aggregate price level at time t is equal to pt = 0.5(x + x). If aggregate demand given by y = m - Pt and m = mo +wi, what is the effect of money shock we on pi and y? Explain why output shows no persistence after money shock? %3D 1
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