Question: Using Fig. 5.8 as a guide, draw the corresponding diagram to illustrate the lag structure in the standard version of the 3-equation model. Now assume

Using Fig. 5.8 as a guide, draw the corresponding diagram to illustrate the lag structure in the standard version of the 3-equation model. Now assume that there is no lag between a change in the interest rate and its effect on output. Draw a diagram to illustrate this lag structure. Use all three figures to provide a concise summary of the role of lags in the operation of monetary policy. Go to the website of one of the central banks listed in the next question (or another one of your choice) and find out their view about the lags between a change in the interest rate and its effects on output and inflation. Do they identify the same factors as responsible for the lags?

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