Economics 302 Intermediate Macroeconomic Theory and Policy Theory and Policy (Fall 2010) Prof. Menzie Chinn Lecture 27 Lecture 27 December 8, 2010
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Economics 302Intermediate Macroeconomic
Theory and PolicyTheory and Policy(Fall 2010)
Prof. Menzie ChinnLecture 27Lecture 27
December 8, 2010
Macroeconomic Policy ModelMacroeconomic Policy Model
• Combines Taylor Rule IS curve to obtainCombines Taylor Rule, IS curve to obtain Macroeconomic Policy curve
• Reintroduce Phillips Curve• Reintroduce Phillips Curve• Find equilibrium in output gap/inflation
space• Show effects of policy changes defined as
changes in rules
Taylor Ruley
Taylor Ruley
Notes: R* = 2.5%, β=0.5, δ=0.5
Phillips Curve AgainPhillips Curve, Again
• Assume expectations augmentedAssume expectations augmented,• Where expectations are adaptive
S l h k ll d f• Supply shocks allowed for
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