We have the following Cagan equation: mt - pt = -1Et[Pt+1 Pt], where m = ln(Mt),...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
We have the following Cagan equation: mt - pt = -1Et[Pt+1 Pt], where m = ln(Mt), pt = ln (Pt), Pt: price level at period t, and M: money supply at t. (1) a) (10 marks) Find an expression of p, in terms of a sequence of money supply (m,mt+1 ), assuming a no-bubble condition. = M b) (10 marks) Households are now at period t=0. The money supply stays constant at m from t 2 on. That is, Eoms = M for s> 1. The money supply at t=0 and t=1 are, respectively, nM and nM. What is the price level at t=0? In other words, what is po ? M from t=0 on. At c) (20 marks) The money supply mt is expected to stay constant at m = period 1, a government unexpectedly increase the money supply for seigniorage, and once it has increased the money supply at period 1, the money supply will stay constant at the level from period 1 onward. If the government wants to have a seigniorage amounting to b in real terms, by how much does the government increase its money supply? it is assumed that b < 1, and you don't have to convert m, to Mt. That is, just solve for the answer in the logged term. d) (20 marks) Now assume that there are two countries A and B, and the Cagan equation holds for both countries. For country A, the money supply over time is given by m = mA + HAt For country B, the money supply over time is given by m = mB+ Bt (a) Let A = 2% and = B 0 and 1? (you need to show your work to get points). (3) 4%. What is the inflation rate for each country between period (b) Suppose that the relative PPP holds between the two countries. How much will the country B's currency depreciate or appreciate over the next 5 years? We have the following Cagan equation: mt - pt = -1Et[Pt+1 Pt], where m = ln(Mt), pt = ln (Pt), Pt: price level at period t, and M: money supply at t. (1) a) (10 marks) Find an expression of p, in terms of a sequence of money supply (m,mt+1 ), assuming a no-bubble condition. = M b) (10 marks) Households are now at period t=0. The money supply stays constant at m from t 2 on. That is, Eoms = M for s> 1. The money supply at t=0 and t=1 are, respectively, nM and nM. What is the price level at t=0? In other words, what is po ? M from t=0 on. At c) (20 marks) The money supply mt is expected to stay constant at m = period 1, a government unexpectedly increase the money supply for seigniorage, and once it has increased the money supply at period 1, the money supply will stay constant at the level from period 1 onward. If the government wants to have a seigniorage amounting to b in real terms, by how much does the government increase its money supply? it is assumed that b < 1, and you don't have to convert m, to Mt. That is, just solve for the answer in the logged term. d) (20 marks) Now assume that there are two countries A and B, and the Cagan equation holds for both countries. For country A, the money supply over time is given by m = mA + HAt For country B, the money supply over time is given by m = mB+ Bt (a) Let A = 2% and = B 0 and 1? (you need to show your work to get points). (3) 4%. What is the inflation rate for each country between period (b) Suppose that the relative PPP holds between the two countries. How much will the country B's currency depreciate or appreciate over the next 5 years?
Expert Answer:
Answer rating: 100% (QA)
Solutions a Expression of pt in terms of a sequence of money supply From the Cagan equation mt pt Et... View the full answer
Related Book For
Posted Date:
Students also viewed these economics questions
-
compare the process of managing an operating budget to that of managing a capital budget and identify knowledge gap
-
During the current year, the Borough of Chittenden transfers $430,000 from the General Fund to the Debt Service Fund to make interest payments. What is the journal entry to record this transaction in...
-
Repeat Exercise 6.20 but refer to the demand for personal computers given in the following equation. Is there a difference between the estimated income elasticities for cell phones and personal...
-
Describe the role of the police in contemporary society? 2. What does Alex Vitale argue? Do you agree with him? 3. Discuss the impact of the #Black Lives Matters protests. 4. How do you see the...
-
When cis-2-methylcyclohexanol reacts with the Lucas reagent, the major product is 1-chloro- 1-methylcyclohexane. Propose a mechanism to explain the formation of this product?
-
What major factors influence the cost of home insurance?
-
An average toilet uses \(5 \mathrm{gal}\) of water per flush. A high-efficiency toilet uses about 1.25 gal per flush. How much water would a household save in a week if the toilet was flushed 8 times...
-
Recently, the annual inflation rate measured by the Consumer Price Index (CPI) was forecast to be 3.3%. How could a T-bill have had a negative real rate of return over the same period? How could it...
-
Calculate the volume generated when the shaded region is rotated about a the x-axis h the yaxis. 2 The region enclosed by the graphs of y = x + 1 and y = 3 - x is rotated around the x- axis....
-
A baseball supply store has many inexpensive baseball gloves. In fact, over half of the gloves in stock cost less than $50. However, there are also a few high-end, more expensive gloves in stock....
-
You are a CIA and the director of internal auditing in a publicly held manufacturing corporation, Conrod, which deals in consumer products. The company has developed a new line of baby carriages....
-
Adriana Lopez receives the March bank statement for Success Systems on April 11, 2008. The March 31 bank statement shows an ending cash balance of \($86,896\). A comparison of the bank statement with...
-
Control of cash A good system of cash control helps protect both cash receipts and cash disbursements. 1. What are three basic guidelines that help achieve this protection? 2. Identify a control...
-
Adjusting entries from bank reconciliation Prepare the adjusting journal entries that Del Gato Clinic must record as a result of preparing the bank reconciliation in Exercise 8-7. Exercise 8-7: Bank...
-
It is important that companies assess their risks of workplace fraud. Managers must also possess the skills to identify workplace fraud and the skills to establish internal controls to effectively...
-
CHAPTER THREE Financial Forecasting and Planning 95 April 2007: Section B. Q2 a The balance sheet for APPRENTICE CORP is as follows: APPRENTICE CORP Balance Sheet as at 30 June 2006 (RM'000) Cash...
-
To determine whether training in a series of workshops on creative thinking increases IQ scores, a total of 70 students are randomly divided into treatment and control groups of 35 each. After two...
-
Its well established, well assume, that lab rats require an average of 32 trials in a complex water maze before reaching a learning criterion of three consecutive errorless trials. To determine...
-
Television stations sometimes solicit feedback volunteered by viewers about a televised event. Following a televised debate between Barack Obama and Mitt Romney in the 2012 U. S. presidential...
-
Using the data in Your Turn 13.5, how much water would be saved in a month if one-third of a town's population of 15,000 turned the faucet off when brushing their teeth except when rinsing?
-
Using the data in Example 13.5, how much water would be saved in a year if one-sixth of the population of the state of Florida, which is approximately 21.6 million people, turned the faucet off when...
-
Hurd Inc. prepays rent every three months on March 1, June 1, September 1, and December 1. Rent for the three months totals \(\$ 3,600\). On December 31, 2018, Hurd will report Prepaid Rent of: a....
Study smarter with the SolutionInn App