1. Is it true that disinflation could be costless if the monetary authority is highly credible? Show the impulse response functions of inflation, output and the real interest rate in response to an exogenous disturbance of inflation in the case of:
   1. backward-looking inflation expectations
   2. perfectly-targeted inflation expectations to the inflation target.

Consider the statements below.

1. Effective communication is important for the way the economy reacts to exogenous shocks.
2. Effective communication is not relevant for the response of the agents to changes in the interest rate

Suppose the government has perfect control over monetary policy. If expectations are adaptive, what is the effect of targeting a level of output above equilibrium? Is the effect different if expectations are rational?