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What value should the european central bank

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Reference no: EM132506518

The European Central Bank normally sets monetary policy by choosing 1 year real interest rates according to the following Taylor Rule:

After the Global Financial Crisis , the output gap was - 3% and the expected inflation rate was 0%.

What value should the European Central Bank have set real and nominal interest rates if it wanted to follow the Taylor Rule? Why may this not be possible? If the central bank cannot set them as low as it wants, what do you think happens to the speed at which the economy attains their desired inflation and output targets?

Reference no: EM132506518

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