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Recent empirical evidence by Fair (2002,2005) and Giordani (2003) shows that a positive inflation shock with the … include wealth effects. It is demonstrated that, following an inflation shock, the decline of output coupled with passive …
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We study the properties of the optimal nominal interest rate policy under different levels of price indexation. In our model indexation regulates the sources of inflation persistence. When indexation is zero, the inflation gap is purely forward- looking and inflation persistence depends only on...
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cost-push shock process, and the relevance of demand shocks. These results can be interpreted in terms of the optimal …
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