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| The '''monetary policy reaction function''' (MPRF) is the upward-sloping relationship between the [[inflation rate]] and the [[unemployment rate]]. When the [[inflation rate]] rises, a [[central bank]] wishing to fight [[inflation]] will raise [[interest rates]] to reduce output and thus increase the [[unemployment rate]].
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| The MPRF is a function of the [[Taylor rule]], the [[IS curve]], and [[Okun's law]].{{cn|date=August 2013}}
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| The MPRF has the equation:
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| <math>u = u_{0} + \Phi(\pi - \pi_{t})</math>
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| Where <math>\Phi</math> is a parameter that tells us how much unemployment rises when the [[central bank]] raises the [[real interest rate]] <math>r</math> because it thinks that [[inflation]] is too high and needs to be reduced.
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| The Slope of the MPRF is: <math>\frac{1}{\Phi}</math>
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| The MPRF is used hand in hand with the [[Phillips Curve]] to determine the effects of [[economic policy]]. This framework illustrates [[Underemployment equilibrium|equilibrium]] levels of the [[unemployment rate]] and the [[inflation rate]] in a [[sticky-price model]].
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| == Alternative ==
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| Alternatively, in [[Ben Bernanke]] and [[Robert H. Frank]]'s ''Principles of Economics'' textbook, the MPRF is a model of the Fed's interest rate behavior. In its most simple form, the MPRF is an upward-sloping relationship between the real interest rate and the inflation rate. The following is an example of an MPRF from the third edition of the textbook{{full|date=August 2013}}:
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| r = r* + g(π - π*)
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| r = target real interest rate (or actual real interest rate)<br />
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| r* = long-run target for the real interest rate<br />
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| g = constant term (or the slope of the MPRF)<br />
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| π = actual inflation rate<br />
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| π* = long-run target for the inflation rate
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| Of course, the MPRF above is just one example, and there are other examples (such as the [[Taylor rule]]) that are more complex.
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| The following graph shows the simple MPRF with the real interest rate on the Y-axis and the inflation rate on the X-axis.<ref>from the [http://econblog.aplia.com/2007/10/monetary-policy-reaction-function.html?showComments=false Aplia Econ Blog]</ref> Assume a 3% actual and long-run target inflation rate.
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| == References ==
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| {{Reflist}}
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| [[Category:Macroeconomics]]
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| [[Category:Monetary economics]]
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Aircraft Preservation Engineer (Mechanical ) Sulit from Bramalea, has hobbies and interests including musical instruments, ganhando dinheiro na internet and polo. Unearthed some fascinating spots after spending 2 days at Maritime Greenwich.
Feel free to surf to my site ... ganhe dinheiro