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(Throughout this part, assume that every month, the RBA either raises or lowers the cash rate target.) Hongyi has performed some further analysis. He has
(Throughout this part, assume that every month, the RBA either raises or lowers the cash rate target.) Hongyi has performed some further analysis. He has worked out that if the RBA raises the cash rate target in a given month, it will raise the cash target rate in the following month with (2% probability. On the other hand, if the RBA lowers the cash rate target in a given month, it will lower the cash target rate in the following month with 62% probability. B1. The RBA has raised the cash rate target this month. What is the probability that in two months, it will raise the cash target rate? [3 marks] B2. What is the steady-state probability that the RBA will raise the cash rate target? [3 marks] B3. Suppose the RBA increased the cash rate target this month. Is the probability that the RBA will raise the cash rate target in 100 months greater than 50%, or less than 50%? [2 marks] (No answer given) Greater than 50% Less than 50%
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