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A Simple Model 3
An Ad Hoc Model of the Inrlationl
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Argentina assume attempt to minimize Bolivia Calvo Consequently cost of inflation credit contracts curve debt indexation denote difficulties if credit economy equation 13 equation 22 equilibrium taxes ex post real example existence of multiple exogenous expected inflation fiscal deficit Fisher equation fully indexed government debt government expenditure government in period high nominal interest high—inflation higher Hoc Model indeterminacy problem inflation between period low-inflation low—inflation marginal cost monetary authorities multiple equilibria multiplicity of equilibria nominal contracts nominal interest rate non-indexed debt optimal response function optimum output paper passive money perfect foresight perspective of period peso-problem period policy surprises policymaker possible previous section price level private sector public debt rate of inflation rate of interest real debt service real interest rate real monetary balances recalling equations relatively high inflation relatively high nominal relatively low set of equilibrium social cost stabilization program supply of money taxation three equilibrium solutions variable