Analyzing a Demand Shock without an Inflation Target by Contrasting with a FlexIT Regime
To illustrate the consequences of lacking a stable inflation target, a useful method is to analyze the impact of a positive, domestic aggregate demand shock and compare it to the response of a FlexIT economy under the same conditions. The analysis begins from an identical starting point to the FlexIT case, as depicted in Figure 7.5, to isolate the effect of the policy regime. The subsequent economic developments in the absence of an inflation target are then traced using a diagram like Figure 7.7.
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Introduction to Macroeconomics Course
Ch.7 Macroeconomic policy in the global economy - The Economy 2.0 Macroeconomics @ CORE Econ
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Analyzing a Demand Shock without an Inflation Target by Contrasting with a FlexIT Regime
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Learn After
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