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Illustrative Simulations of a Small Model
CMM Model Responses to Positive Demand Shocks
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1990 Inflation absorption deflator aggregate demand equation average level backward-looking business cycles CMM function contemporaneous effect Cubic Function cumulative output gap delayed policy response deviation effect on inflation effect on output estimation results excess demand excess supply f(gap federal funds rate forward-looking component functional form G-7 countries gap terms gapt implies inflation expectations inflation rate inflation-activity inflationary pressures INTERNATIONAL MONETARY FUND Laxton level of GDP level of output likelihood function linear alternative linear model log(y/y Long-Term Interest Rate loss in output monetary authority MPS model negative gaps non-oil GDP deflator nonlinear model output-inflation tradeoff panel of Chart parameter percentage points Phillips curve policy reaction function policymakers Positive Demand Shocks positive output gap positive shock potential output quadratic quadratic function quarterly raise inflation real GDP real interest rate response is delayed Rose and Tetlow shocks to aggregate short-term interest rate short-term real interest specification transmission mechanism variance of output weight