Long-Run Convergence in a FlexIT Economy
In a FlexIT regime, which features a stable inflation target, the economy is expected to return to its long-run equilibrium over time. This equilibrium is characterized by the inflation rate converging to the central bank's target and the unemployment rate settling at the supply-side equilibrium level.
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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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Bundesbank's Pre-Euro Monetary Policy as an Example of the FlexIT Model
Inapplicability of the FlexIT Model to the UK and Spain's High-Inflation Era
The FlexIT Model as a Benchmark for Comparing Policy Regimes
Price Ratio Stability in FlexIT Regimes with Similar Inflation Targets
Comparison of FlexIT and FlexNIT Regimes
Long-Run Convergence in a FlexIT Economy
The Eurozone as a FlexIT Economy
Credibility as a Prerequisite for a Successful FlexIT Regime
UK's Shift to a FlexIT Regime as an Alternative Commitment Strategy
US FlexIT Regime and Inflation Target
Consider an economy where the central bank operates independently with a primary mandate to maintain a low and stable rate of price increases. The value of this country's currency is determined by supply and demand in global markets without direct government intervention. If this economy experiences a sudden, sharp decrease in consumer spending that pushes it towards a recession, what is the most likely combined response of the central bank and the exchange rate?
Analyzing a Country's Macroeconomic Framework
In an economy where the currency's value is determined by market forces and the central bank is independent with a strong mandate to maintain price stability, a sudden, large increase in the global price of imported raw materials will necessarily cause a sustained period of high inflation.
The Stabilizing Role of the Exchange Rate
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ECB's Target as the Anchor for Member Country Inflation
South Africa's FlexIT Regime and Inflation Target
Formula for Expected Nominal Depreciation Between FlexIT Economies
Economic Adjustment in an Inflation-Targeting Regime
An economy operates with a flexible exchange rate and an independent central bank committed to an inflation target of 3%. Currently, the economy is experiencing an inflation rate of 5% and an unemployment rate of 4%. The long-run supply-side equilibrium unemployment rate is estimated to be 6%. Based on the principles of long-run adjustment in such an economy, what is the expected outcome over time?
In an economy with a flexible exchange rate and an independent central bank focused on a stable inflation target, achieving long-run equilibrium requires the central bank to actively manage policy to ensure both the inflation rate meets its target and the unemployment rate meets a pre-determined target level.
Long-Run Adjustment Path
For each economy described below, which operates with a flexible exchange rate and an inflation-targeting central bank, match its current state to its expected long-run equilibrium.
In an economy operating with a flexible exchange rate and an inflation-targeting central bank, the long-run equilibrium level of unemployment is not determined by monetary policy, but rather by the __________ side of the economy.
An economy with a flexible exchange rate and an inflation-targeting central bank experiences a demand shock that pushes inflation above its long-run target. Arrange the following events to show the logical sequence of the economy's adjustment back to its long-run equilibrium.
The Self-Correcting Mechanism in an Inflation-Targeting Economy
Critique of a Policy Proposal
A political leader in a country with a flexible exchange rate and an independent central bank announces a plan to use monetary policy to permanently reduce the unemployment rate to 2%, which is well below the country's estimated long-run supply-side equilibrium unemployment rate of 5%. The leader also promises that the central bank's inflation target of 3% will be maintained. Why is this dual objective fundamentally problematic in the long run?