Monetary policy reaction function: Difference between revisions

Revision as of 05:41, 19 November 2010

Revision as of 05:45, 19 November 2010

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The MPRF is used hand in hand with the [[Phillips Curve]] to determine the effects of [[economic policy]]. This framework illustrates [[Underemployment equilibrium|equilibrium]] levels of the [[unemployment rate]] and the [[inflation rate]] in a [[sticky-price model]].

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Alternatively, in Ben Bernanke and Robert Frank's [http://catalogs.mhhe.com/mhhe/viewProductDetails.do?isbn=0073230596 Principles of Economics] textbook, '''the MPRF is a model of the Fed's interest rate behavior'''. In its most simple form, the MPRF is an upward-sloping relationship between the real interest rate and the inflation rate. The following is an example of an MPRF from the third edition of the textbook:<br /><br />

r = r* + g(π - π*)