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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
The importance of using rather than saving your ammunition in the presence of the zero lower bound. Suppose inflation is described by the accelerations Phillips curve,
 and that output is determined by a simple IS curve
 , Initially, the central bank is setting the nominal interest rate at a strictly positive level: i(0) > 0. Assume ![]()
(a) Suppose the central bank keeps i constant at i (0). Sketch the behavior of inflation and output over time.
(b) Suppose the central bank keeps i constant at i (0) until some time when bπ(t) < 0,="" and="" then="" permanently="" reduces="" i="" to="" zero.="" sketch="" the="" behavior="" of="" inflation="" and="" output="" over="" time.="">
(c) Suppose the central bank permanently reduces i to zero at t = 0. Sketch the behavior of inflation and output over time.
(d) Explain your results intuitively.
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