Macromodelling

The expections-augmented Phillips curve Part ii 1. P = Pe + g (y ? y*) 2. R = a1 . y ? a2 . (m ? p) 3. r = R - Pe 4. y = b0 ? b1 . r 5. p = Lp + P Equation 1 is derived directly from the veg marrow of the expectations-augmented Phillips curve. It states that existing splashiness is equal to expected inflation when the unemployment lay is at the inseparable level. In other words, the unemployment enume lay out differs from the natural rate when expected inflation does not play actual inflation. Unemployment is then substituted with output, y, and we end at equation 1. (See however story below). The parameter g de bourneines how much a exit between output and potential output affects the inflation rate. In the model, y is the put down of gross domestic product. This makes sense, because we are commonly interested in dower increases in GDP. Using the record get means that a steady growth gives a linear head for the hills, whereas without the log form we would hav e to use an exponential function functional form. Equation 2, where R is the nominal interest rate, m is the log of the money line of descent and p is the log of the price level, states that the nominal interest rate is a function of GDP and the growth of the money depot and the price level.

The start-off part of the equation (a1.y) means that when GDP increases this tends to push up R by the factor a1. The term (m - p) is the var. of real frame money balances. If prices are growing at a high rate than the money line of reasoning, the stock of real money balances go forth decrease, and thus the nominal inter est rate will increase. Equally, when the st! ock of money is growing faster than prices, the stock of real money... If you wishing to get a full essay, club it on our website: BestEssayCheap.com

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