The equilibrium real fed funds rate is 2%, the inflation target is 2% and the growth rate of potential output is 3%. If inflation is -1% and GDP growth is 0%, find the federal funds rate recommended by the Taylor Rule. What is an additional problem in this situation? (Note: The output gap is output growth minus potential output growth.)
The recommended fed funds rate is -2%, but nominal rate can't fall below zero (for any sustained period of time).
Correct Answer:
Verified
View Answer
Unlock this answer now
Get Access to more Verified Answers free of charge
Q62: The textbook says that fixing an interest
Q63: The equilibrium real fed funds rate is
Q64: If the equilibrium real fed funds rate
Q65: What was the Fed's primary goal during
Q66: Why do people speculate that the Feds
Q68: How did Regulation Q dampen economic growth
Q69: Some students end up cramming for finals.
Q70: A central bank adopts a policy of
Q71: When the Fed was created, what was
Q72: If the equilibrium real fed funds rate
Unlock this Answer For Free Now!
View this answer and more for free by performing one of the following actions
Scan the QR code to install the App and get 2 free unlocks
Unlock quizzes for free by uploading documents