The Taylor rule, which states that the central banks will determine the policy interest rate according...

 

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The Taylor rule, which states that the central banks will determine the policy interest rate according to a certain rule, taking into account the deviations of the output from the potential level and the inflation rate from the targeted level, can be written as follows. 30 25 20 15 10 According to this, a) Briefly explain what the a and values mean. b) The charts below show the recent course of the CBRT policy interest rate and inflation rate. The CBRT's inflation target has been at 5 percent for a long time. Accordingly, if this rule is adhered to in monetary policy, approximately what is the interest rate to be determined? Explain the possible effects of determining the interest rate according to this rule on inflation and growth rates by considering the aggregate demand and aggregate supply dynamics. (Note: final values in the charts: Interest rate=8.5%, Inflation rate: 39.58%) S 5/20/10 5/20/11 5/20/12 5/20/13 5/20/14 i in + α (π-π) +B (y - ÿ) inflation gap Interest rate 5/20/15 5/20/16 5/20/17 5/20/18 5/20/19 5/20/20 5/20/21 5/20/22 output frankly 90 80 70 60 50 40 30 20 10 0 Inflation rate 2011-11 2012-08 2013-05 2014-02 2014-11 2015-08 2016-05 2017-02 2017-11 2018-08 2019-05 2020-02 2020-11 2021-08 2022-05 2023-02 The Taylor rule, which states that the central banks will determine the policy interest rate according to a certain rule, taking into account the deviations of the output from the potential level and the inflation rate from the targeted level, can be written as follows. 30 25 20 15 10 According to this, a) Briefly explain what the a and values mean. b) The charts below show the recent course of the CBRT policy interest rate and inflation rate. The CBRT's inflation target has been at 5 percent for a long time. Accordingly, if this rule is adhered to in monetary policy, approximately what is the interest rate to be determined? Explain the possible effects of determining the interest rate according to this rule on inflation and growth rates by considering the aggregate demand and aggregate supply dynamics. (Note: final values in the charts: Interest rate=8.5%, Inflation rate: 39.58%) S 5/20/10 5/20/11 5/20/12 5/20/13 5/20/14 i in + α (π-π) +B (y - ÿ) inflation gap Interest rate 5/20/15 5/20/16 5/20/17 5/20/18 5/20/19 5/20/20 5/20/21 5/20/22 output frankly 90 80 70 60 50 40 30 20 10 0 Inflation rate 2011-11 2012-08 2013-05 2014-02 2014-11 2015-08 2016-05 2017-02 2017-11 2018-08 2019-05 2020-02 2020-11 2021-08 2022-05 2023-02