Question: Suppose that the central bank sets its interest rate target
Suppose that the central bank sets its interest rate target to achieve efficiency in response to temporary shocks to total factor productivity. Using diagrams, determine what the economy’s responses will then be to the total factor productivity shocks. How will this differ from what happens in a real business cycle model? Explain your results, and discuss the implications for what the data can reveal about what is the better business cycle model, the real business cycle model or the New Keynesian model.
Answer to relevant QuestionsIn the New Keynesian model, suppose that in the short run the central bank cannot observe aggregate output or the shocks that hit the economy. However, the central bank would like to come as close as possible to economic ...Suppose in the first model in this chapter that there is a limited commitment friction and the possibility the nation could default in the current or future periods. Suppose that, if the nation does not default, then the ...Suppose in the model that government expenditures increase temporarily. Determine the effects on aggregate output, absorption, the current account surplus, the nominal exchange rate, and the price level. What difference does ...Consider the absence-of-double-coincidence economy depicted in Figur. Determine who would trade what with whom if good 2 were used as a commodity money. Explain your results.In the Diamond-Dybig banking model, suppose that, instead of a bank, consumers can trade shares in the production technology. That is, each consumer invests in the production technology in period 0. Then, if the consumer ...
Post your question