Discuss the size of the coefficients on the inflation gap and output gap terms in the Taylor rule mentioned in class. Do you think these coefficients should be fixed all the time and for every country?
Added by Beril C.
Step 1
The rule is given by the following equation: Interest Rate = Neutral Rate + α(Inflation - Inflation Target) + β(Output Gap) Here, the neutral rate is the interest rate that is neither expansionary nor contractionary, α and β are the coefficients on the inflation Show more…
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