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Suppose that people's expectations of inflation are subject to random shocks. That is, instead of being merely adaptive, expected inflation in period t, as seen
Suppose that people's expectations of inflation are subject to random shocks. That is, instead of being merely adaptive, expected inflation in period t, as seen in period t 1, is Et1(t) = t1 + t1, where t1 is a random shock. This shock is normally zero, but it deviates from zero when some event beyond past inflation causes expected inflation to change. Similarly, Et(t+1) = t + t . Derive both the DAD and the DAS equations in this slightly more general model
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