Dad and the das equations

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Suppose that people's expectations of inflation are subject to random shocks. That is, instead of being merely adaptive, expected inflation in period t, as seen in period t - 1, is Et-1(πt) = πt-1 + ηt-1, where ηt-1 is a random shock. This shock is normally zero, but it deviates from zero when some event beyond past inflation causes expected inflation to change. Similarly, Et(πt+1) = πt + ηt . Derive both the DAD and the DAS equations in this slightly more general model

Reference no: EM132631555

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