The monetary policy rule discussed in class specifies that the real interest rate depends on the...

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The monetary policy rule discussed in class specifies that the real interest rate depends on the difference between actual and target rates of price inflation (among other things). In the real world, there are many empirical measures of actual price inflation. What factors should the Fed consider in choosing an actual inflation measure to insert into the policy rule? For extra credit, discuss what factors help determine the numerical value for target rate of inflation (c.g., 1% per year. 2% per year, etc.). The monetary policy rule discussed in class specifies that the real interest rate depends on the difference between actual and target rates of price inflation (among other things). In the real world, there are many empirical measures of actual price inflation. What factors should the Fed consider in choosing an actual inflation measure to insert into the policy rule? For extra credit, discuss what factors help determine the numerical value for target rate of inflation (c.g., 1% per year. 2% per year, etc.).

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In choosing an actual inflation measure to insert into the policy rule the Federal Reserve Fed should consider the following factors 1 Accuracy The chosen inflation measure should accurately reflect t... View the full answer