Maurice Tutor

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  • MCS,PHD
    Argosy University/ Phoniex University/
    Nov-2005 - Oct-2011

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    Phoniex University
    Oct-2001 - Nov-2016

Category > Management Posted 17 Jan 2018 My Price 5.00

behavior of the price level

Consider the experiment described at the beginning of Section 7.4. Specifically, a Calvo economy is initially in long-run equilibrium with all prices equal to m, which we normalize to zero. In period 1, there is a one-time, permanent increase in m to m1.

Let us conjecture that the behavior of the price level for t ≥ 1 is described by an expression of the form pt = (1 −λt )m1.

(a) Explain why this conjecture is or is not reasonable.

(b) Find λ in terms of the primitive parameters of the model (α,β, and φ).

(c) How do increases in each of α,β, and φ affect λ? Explain your answers intuitively.

 

 
 

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Maurice Tutor
(5)
Status NEW Posted 17 Jan 2018 05:01 PM My Price 5.00

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