Consider the following open New Keynesian economy where = 00 + (1 y)(o 1),...
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Consider the following open New Keynesian economy where = 00 + (1 − y)(o − 1), ñº = (0a + 4), σa = - ît ŝt = (it - Et[1]) — (ît − Et[î+1]) + Et[ŝt+1], - 1 (ir — Ex [ñi-1]) — ~²³ Ex[A$1+1] + m₂ Υψ -Et[Aŝt+1] t Et 0 O î¦ = ßEt [î+1] + úît − ByEt [Aŝt+1] + YAŝt, t = Et [t+1] = = K = (1-K)(1-BK) K 1-7+7 Ast = ŝt – ŝt-1. Suppose that world nominal interest rates to increase by 10 percent, i.e. - (0 + 6) (¹ and " 0.10. Suppose the economy goes back to steady state in just one period. Let 3 = 0.90, σ= 2, 1, 0 = 4, and K = - 0.25. For an open economy one with y = 0.5, consider two possible scenarios: (i) the interest rates at the local economy are stuck at the zero lower bound and do not respond it = 0 and (ii) the interest rates increase by 5 % ît = 0.05. For both scenarios, calculate ŝt, ît and îț. Explain your results briefly. Consider the following open New Keynesian economy where = 00 + (1 − y)(o − 1), ñº = (0a + 4), σa = - ît ŝt = (it - Et[1]) — (ît − Et[î+1]) + Et[ŝt+1], - 1 (ir — Ex [ñi-1]) — ~²³ Ex[A$1+1] + m₂ Υψ -Et[Aŝt+1] t Et 0 O î¦ = ßEt [î+1] + úît − ByEt [Aŝt+1] + YAŝt, t = Et [t+1] = = K = (1-K)(1-BK) K 1-7+7 Ast = ŝt – ŝt-1. Suppose that world nominal interest rates to increase by 10 percent, i.e. - (0 + 6) (¹ and " 0.10. Suppose the economy goes back to steady state in just one period. Let 3 = 0.90, σ= 2, 1, 0 = 4, and K = - 0.25. For an open economy one with y = 0.5, consider two possible scenarios: (i) the interest rates at the local economy are stuck at the zero lower bound and do not respond it = 0 and (ii) the interest rates increase by 5 % ît = 0.05. For both scenarios, calculate ŝt, ît and îț. Explain your results briefly.
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