In section 5.2 we showed that if the money stock follows a mst-order autoregressive process with c < 1,="" then="" in="" the="" cagan="" model="" real="" balances="" will="" be="" high="" when="" the="" money="" stock="" is="" high="" and="" low="" when="" the="" money="" stock="" is="" low.=""> (a) Give the economic intuition behind this result. (b) Suppose that the growth rate of money follows a stable mst-order autoregressive process. Solve for the process for the price level. (c) Does the same characterization hold with the addition of the words "relative to trend" following high and low?

In section 5.2 we showed that if the money stock follows a mst-order autoregressive process with c < 1,="" then="" in="" the="" cagan="" model="" real="" balances="" will="" be="" high="" when="" the="" money="" stock="" is="" high="" and="" low="" when="" the="" money="" stock="" is="" low.=""> (a) Give the economic intuition behind this result. (b) Suppose that the growth rate of money follows a stable mst-order autoregressive process. Solve for the process for the price level. (c) Does the same characterization hold with the addition of the words "relative to trend" following high and low?

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter15: Monetary Policy

Section: Chapter Questions

Problem 12QP

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