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WebThe basic New Keynesian model developed in chapter 3 is characterized by two distortions, whose implications are worth considering separately. The first distortion is.

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WebAs shown in the appendix, the solution to that problem yields the set of demand equations C t(i) = P t(i) P t C t (1) for all i2 [0;1], where P t hR 1 0 P t(i)1 di i 1 1 is an aggregate price.

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WebJordi Galí is Senior Researcher at the Center for Research in International Economics (CREI), Professor at Universitat Pompeu Fabra and Research Professor at the.