dynamic model of economic fluctuations (L12)

Question 1

dynamic IS equation

Answer 1

Y=Y-a(r-p)+e
r real interest rate affected by monetary policy
e demand shock eg wealth expectations, gov policy changes

Question 2

real interest rate r

Answer 2

nominal i t - expected E t pi t+1
t+1 future inflation

Question 3

theta pi

Answer 3

how much CB reacts to changes in inflation

Question 4

theta Y

Answer 4

how much CB reacts to changes in output

Question 5

adaptive interest

Answer 5

inflation today will be same as inflation next period, firms will behave anticipating it