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Consider a country where the central bank policy rate has been constant at 2% from

Consider a country where the central bank policy rate has been constant at 2% from 2012 to 2014. During these three years (2012, 2013, 2014) the equilibrium real interest rate has been 2% and the target inflation rate has been 2%. The current inflation rate has been 2%, 3%, and 2% in 2012, 2013, and 2014, respectively. The output gap has been −4%, −7%, and −6% in 2012, 2013, and 2014 respectively. Assuming that the Taylor rule is a good benchmark, assess the policy stance of the central bank. Has the adopted interest rate policy been appropriate? Explain.

Feb 07 2020 View more View Less

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