9. Both advanced economics and developing countries have experienced a decrease in inflation since the 1980s (see Table 14-3 in the text).

This question considers how the choice of policy regime has influenced such global disinflation. Use the monetary model to answer this question.

a. The Swiss Central Bank currently targets its money growth rate to achieve policy objectives. Suppose Switzerland has output growth of 3% and money growth of 8%

each year. What is Switzerland’s inflation rate in this case? Describe how the Swiss Central Bank could achieve an inflation rate of 2% in the long run through the use of a nominal anchor.

b. Like the Federal Reserve, the Reserve Bank of New Zealand uses an interest rate target.