Jondeau, Eric (contributor); … - 2007
interest rate, and τ
t
is home terms of trade. Equation (2) is the forward-
looking New Phillips curve where inflation varies … according to real marginal cost and is
indexed to past inflation. Equation (3) defines the terms of trade. Equation (4 … policy rule, in which the interest rate is set in an inertial manner
to respond to inflation and the output gap (the …