Suppose the central bank measures the output gap accurately, Ask an Expert

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Suppose the central bank measures the output gap accurately but mismeasures the neutral real interest rate. It believes the neutral rate is 1 percent, but the true neutral rate is 3 percent.

If the central bank follows the Taylor rule, how does its mistake affect the interest rates it sets and the behavior of output and inflation? Explain.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M91977730

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