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Economics 302 Intermediate Macroeconomic Theory and Policy Theory and Policy (Fall 2010) Prof. Menzie Chinn Lecture 27 Lecture 27 December 8, 2010
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
