Question: 1. Optimal monetary policy at the zero lower bound under discretion. Consider the standard New Keynesian model with a zero lower bound constraint = Ext+1

Consider the standard New Keynesian model with a zero lower bound constraint

1. Optimal monetary policy at the zero lower bound under discretion. Consider the standard New Keynesian model with a zero lower bound constraint = Ext+1 - 0-1(it - Eint+1 - rt) = BE tti + KIt it = max [0, r + 0* * + dzi't] Assume that ~ follows a two state Markov process 1 - 6 P = 0 where 0 0 in the high state.(b) Show that when we are in low state such that re = my

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