Parameters

Potential output \(Y_n = 100\).

MPC \(c_1\):

Investment sensitivity to interest rate \(b\):

PC slope \(\gamma\):

% of agents with anchored expectations \(\psi\):

Inflation target \(\pi^*\) (%):

Neutral nominal rate \(i_n\) (%):

Taylor rule parameter \(\varphi\):

Model
Simulation

Model equations: \[\begin{cases} Y_t = C_0 + c_1 Y_t + I_0 - b\,r_t + G_0 \\ \pi_t = \pi^E_t + \gamma (Y_t - Y_n) + \varepsilon^\pi_t \\ \pi^E_t = \psi\,\pi^* + (1-\psi)\,\pi_{t-1} \\ i_t = i_n + (1+\varphi)(\pi_t - \pi^*) \\ r_t = i_t - \pi^E_{t+1} \end{cases}\]

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Shocks

Shocks hit at \(t = 1\).

Demand shock \(\Delta AE_0\):

Permanent

Potential output shock \(\Delta Y_n\):

Permanent

Cost-push shock (pp):

CB reaction to permanent shocks:

CB adjusts \(i_n\)?

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