Model in which expected inflation is zero

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Reference no: EM13948397

Consider the following model in which expected inflation is zero

y(t)= 12 + 0.2(m - p(t))

p(t + 1)- p(t)= 1.5(y(t)- yn) m = 10 yn = 8

(i) What is the fixed point of this model and is it stable?

(ii) If p(0)=15, plot the inflation rate for t =1 to 20.

Reference no: EM13948397

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