Monetary policy reaction function: Difference between revisions

Revision as of 12:21, 14 May 2016

Revision as of 20:47, 3 December 2017

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<math>u = u_{0} + \Phi(\pi - \pi_{t})</math>

Wherewhere <math>\Phi</math> is a parameter that tells us how much unemployment rises when the [[central bank]] raises the [[real interest rate]] <math>r</math> because it thinks that [[inflation]] is too high and needs to be reduced.

The Slopeslope of the MPRF is: <math>\frac{1}{\Phi}.</math>

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]].

== Alternative ==