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