Foundations of Aggregate Supply Price
Abstract
(3) WA = R1Pne + 1 _ R A n R2U, where pe is the forward-looking expectation and f31 is the credibility coefficient (or degree of belief) attached to the model and the announced policy rule. Total expectation is the weighted sum of the forwardand backward-looking beliefs. In the case of the simplest monetaristrational expectations viewpoint, P, =1, and pe = m*, where m* is the announced monetary target (with the trend in velocity offset by the economy's natural rate of growth). Aggregate supply price will be
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