The Phillips curve is:=E()(uuⁿ)+v

Okun's law is:(uuⁿ)=1/(Y)

Assume, =8 and =0.3,

Inflation Rates are:2019Q4: 1.9%, 2020Q1: 1.7% and 2020Q2: 1.4%

Output gap (Extended multivariate filter) are:2020Q1: -1.7% and 2020Q2: -13.4%,

Also, E()=0.5+0.5₁

Compute:

a. Use the Phillips curve equation and Okun's law, together with the expression for expectations, the given parameter values, the inflation rate data for 2019Q4 and 2020Q1, and the output gap data for 2020Q1, to compute the value of the supply shock v for 2020Q1. Show your work.

b. Use the Phillips curve equation and Okun's law, together with the expression for expectations, the given parameter values, the inflation rate data for 2020Q1 and 2020Q2, and the output gap data for 2020Q2, to compute the value of the supply shock v for 2020Q2. Show your work.

c. i. Are the signs of the supply shocks that you computed in the previous questions consistent with what you would have expected?

ii. According to our setup, in which one of these quarters was the Covid supply shock bigger in Canada?