did you guys get something like 3.25 or 3.5? What bad effect was the drop going to have on the economy, given the st rate was 5.5
lower the targer rate would make inflation, which was already creeping up, worse.
what was the effect for that target interest rate? the calculated one. I cant figure it out
I remember thinking the rate when up over the neutral rate - as a result the encomony would suffer. Dont remember numbers though.
chip Wrote: ------------------------------------------------------- > I remember thinking the rate when up over the > neutral rate - as a result the encomony would > suffer. Dont remember numbers though. Same here.
I said the yield curve downward, economic recession, higher interest rate will suffer economy further
well, i ought to get half of those points, then
L3BeatIt Wrote: ------------------------------------------------------- > lower the targer rate would make inflation, which > was already creeping up, worse. I agree. And the target rate was 3.75% (lower than 5.5% existing rate). NC
wuyuan17 Wrote: ------------------------------------------------------- > I said the yield curve downward, economic > recession, higher interest rate will suffer > economy further Ditto
i had inflation if they lowered rate further, making things even worse.
nevcfa1 Wrote: ------------------------------------------------------- > L3BeatIt Wrote: > -------------------------------------------------- > ----- > > lower the targer rate would make inflation, > which > > was already creeping up, worse. > > I agree. And the target rate was 3.75% (lower than > 5.5% existing rate). > > NC Exactly, I had interest rate as 3.75% and since it was lower than current 5.5%, so this will push inflation up and will lead to further negative business sentiments and economy can go in recession.
excpected inflation was 4% .already greater than trend inflation (2%). thats why the central bank wants to focus on inflationary pressures. ie restrictive policies ->bad for economic growth.
L3BeatIt Wrote: ------------------------------------------------------- > lower the targer rate would make inflation, which > was already creeping up, worse. thats what i said too
I totally farked this one up. Messed up the calculation to get 3.25 (forgot to divide by 2, I wrote the right formula tho so some partial credit). Then I wrote inflation cos I thought “3.25 less than neutral rate”. I was about to cross out inflation for part B then the proctor said STOP WRITING (I was checking answers). So I lost out on part A cos of the wrong calculation…but it looks like I gained in part B cos inflation is the right answer! Compare new rate to the existing rate, not the neutral rate…ha!
I thought the stated neutral rate was lower than the target rate predicted by the Taylor Rule. Meaning that the Taylor rule suggested the central bank should increase rates and thereby slow growth when the GDP was already below trend.
LordJeffrey Wrote: ------------------------------------------------------- > I thought the stated neutral rate was lower than > the target rate predicted by the Taylor Rule. > Meaning that the Taylor rule suggested the central > bank should increase rates and thereby slow growth > when the GDP was already below trend. That’s what I said too.
LordJeffrey Wrote: ------------------------------------------------------- > I thought the stated neutral rate was lower than > the target rate predicted by the Taylor Rule. > Meaning that the Taylor rule suggested the central > bank should increase rates and thereby slow growth > when the GDP was already below trend. i thought the same thing. bizarre. maybe a different question per location.
You don’t compare the calculated target rate to the neutral rate…you compare it to the current rate (which I recall being 5.5%). The Taylor rule predicted a 3.75% rate, thus it would call for a rate reduction by the central bank. A reduction of interest rates can lead to inflation and this was during a period where expected inflation was already in excess of the forecasted rate.
Just think about it logically. Since equal weight is given to inflation and GDP and inflation was further away from the trend then inflation would be the dominant concern so rates would be increased above the neutral rate.
^ that doesn’t tell you anything other than where rates should be set compared to the neutral rate. The rate change, if the central bank listened to the Taylor rule, would be to go to a 3.75% rate…which would reflect a drop in rates from the current 5.5%.