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Explain nominal income targeting rule

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Reference no: EM133079768

Question 1: Assume the value of a = 4 and b = 8 in the loss function stated by Barro and Gordon. State the function and derive the optimal inflation rate (we also call this inflation bias).

a. If the rule is that at = 0%, is this a feasible policy option?

b. What about the announcement of * = 1.75%? Is this reputational equilibrium or nonfeasible?

c. Explain nominal income targeting rule stated by Bean and Mccallum.

Reference no: EM133079768

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