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Basic information: The economy of Colombia is characterized by the following relations. An IS Curve Yt = a - b(Rt - T) X A Fisher
Basic information: The economy of Colombia is characterized by the following relations. An IS Curve Yt = a - b(Rt - T) X A Fisher equation: Rt = it + ft - Ett+1 A monetary policy rule: it = T + m(t - 7) + Ett+1 A Phillips curve: Tit = Et-int + vYt An assumption for inflation expectations: Pt-1 7it = Tit-1 Where f is a shock to interest rate spreads. ft takes positive values when banks are having financial distress in their balance sheets. Research economists at the central bank of Colombia have determined that 7 = 3%, T = 2%, 1 = 1, b = 1, m = 2, where the notation is the same as in class. After being in the long-run equilibrium, in the year 2025, the economy of Colombia did not experience any changes to a, or to the parameters of the model, but the banks of Colombia face financial trouble, so f2025 = 0.01. What is the equilibrium level of inflation in Colombia in 2025? O 3.25% O 2.25% O 4% O 2.75% O 2.33% O 3.75% O 3.66% O 2% O 2.5% O 3.5% O 2.66% O 3.33% O 3%
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